HMV has announced it’s selling Waterstone’s for £53m to a fund controlled by Russian billionaire Alexander Mamut, who already has a 6% stake in HMV.
The news will come as little to surprise to many - the embattled music and games retailer has had what can only be described as a dire year. It’s already posted three profit warnings this year and in just a few months has watched its net debt balloon from £130m to £170m. Just last month it reported that profits were expected to be 25% lower than hoped, so it had to sell something to stay afloat.
The retailer initially blamed the snow for freezing sales over the Christmas period but its problems run much deeper. HMV's traditional music business is being crushed by online competitors offering digital downloads; and is also struggling to compete with supermarkets jumping on the entertainment retailing bandwagon. Its morale suffered another blow when credit insurance for HMV’s suppliers, which protects them if the chain were to go bust, was withdrawn early this year.
Alexander Mamut, a Russian oligarch who’s largely avoided the limelight, has previously built up a portfolio of investments in the Russian financial and insurance sectors. But recently he’s been dipping his toes in the more ‘creative’ sectors further afield. He invested in social networking site LiveJournal three years ago, but arguably Waterstone’s is his most high-profile investment – in the UK at least. He joins a string of wealthy compatriots such as Oleg Deripaska and Alexander Lebedev in finding the UK a congenial place to do business.
HMV said in March that it was thinking of selling Waterstone’s, Britain’s largest book chain, to raise some much-needed cash. Last week the retailer confirmed there was interest from a number of bidders for the company. The figure touted was £43m, so the good news for HMV is that it’s being shifted for more than expected to A & NN Capital Fund Management - provided the sale’s approved by HMV’s shareholders and its lenders. Then again, £53m is considerably less than the £70m HMV’s banks, which include RBS and Lloyds, wanted for the 296-store business.
Nevertheless, the sale might just be enough to keep HMV afloat. In April, the time it delivered its third profit warning, HMV’s lenders had extended its annual banking covenant tests (the conditions under which banks agree to keep lending it money) from its year end on 30 April to 2 July. If HMV hadn't sold Waterstone’s in this time, it may not have met the banks’ loan agreements and could have been forced to call in the administrators. So the sale has come just in time, but HMV still has a long struggle ahead if its next chapter is to be successful.