HMV to Name Deloitte as Administrator While Seeking Sale
HMV Group Plc (HMV), Britain’s biggest seller of CDs and DVDs, plans to appoint Deloitte LLP as an administrator, becoming the U.K. retail industry’s second high- profile casualty in the space of a week.
HMV has been “unable to reach a position where it feels able to continue to trade outside of insolvency protection,” the Maidenhead, England-based company said late yesterday. Once appointed, the administrators plan to keep HMV’s 230 stores open while seeking a buyer for the business.
HMV is among specialist U.K. retailers that have been hurt by growing competition from supermarkets and Web retailers such as Amazon.com Inc. (AMZN) The Jessops camera chain last week became the first failure of 2013 when administrators shut all 187 stores. That followed last year’s collapses of the Comet electronics chain, JJB Sports Plc, Game Group Plc and Clinton Cards Plc.
“It has been a difficult start to the year for the high street,” Kate Calvert, an analyst at Seymour Pierce, said in a note. A shift by HMV toward portable digital products hasn’t been enough to offset “structural pressures” caused by the shift to supermarkets and online competitors, she said.
Trading in HMV shares was suspended before markets opened today. The stock fell 8.3 percent yesterday after people familiar with the matter told Bloomberg News that Apollo Global Management LLC will remain a passive investor after acquiring a stake in the retailer’s bank debt and won’t make an offer.
At yesterday’s closing price of 1.1 penny, HMV was valued at just 4.7 million pounds, having lost almost all its value since reaching a peak of 274 pence in February 2005.
The decision to appoint administrators was taken after weeks of discussions with bank lenders and suppliers, HMV Chief Executive Officer Trevor Moore said on a conference call. The retailer considered “options around property” Finance Director Ian Kenyon said on the call, without elaborating.
Still, both executives defended the future viability of HMV, saying that digital downloading represents only 25 percent of the market, with the rest coming from CDs.
“People want to see an HMV there and it’s our job to create a compelling future,” Moore said, adding that he and Kenyon would like to stay on should a buyer be found. “I’m convinced as a management team we can deliver that.”
Endless LLP, a private-equity firm focusing on companies in distress, said today that it has contacted HMV’s administrators with a view to buying the retailer.
There will be a “flurry of interest” in HMV and any rescue deal will depend on support from the company’s suppliers, said Garry Wilson, a founding partner at Endless. “If they don’t give the new owners any credit then the cash need to resurrect it will be huge and put off most people,” he said.
HMV won’t redeem vouchers or accept returns in its stores, the executives said on the call.
The retailer, which employed an average of 6,997 people in the financial year ended April 2012, said last month it would probably breach debt covenants amid continued losses and lower- than-expected Christmas sales.
Known for its iconic “His Master’s Voice” dog and trumpet trademark, HMV reported a net loss of 36.2 million pounds ($58 million) in the 26 weeks through Oct. 27. Music producers and game developers delayed their release schedule as suppliers avoided adding new products during the London Olympics and the Queen’s Jubilee celebrations, HMV said in December.
The retailer, which had net debt of 176.1 million pounds as of Oct. 27, got about 87 percent of its 1.2 billion-pound revenue from the U.K. and Ireland in the year ended April 2011, according to data compiled by Bloomberg.
HMV said on Dec. 13 it probably won’t comply with agreements on its borrowings in January and April, adding that full-year results are unlikely to meet expectations.
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