In a statement to the London Stock Exchange this morning, HMV said talks had begun following the revelation last week that Ottakar's management may take the company private.
HMV said a further announcement would be made 'if appropriate'.
Ottakar's has about 130 stores, compared with Waterstone's 200. The majority of Ottakar's stores are in smaller towns and sources say only about 30 directly compete with Waterstone's outlets.
Numis analyst Steve Davies believed that although the combined Waterstone's/Ottakars would have a market share of around 25%, he did not expect any deal to be ruled out by the competition authorities, given the involvement of major retailers such as Tesco, Amazon and WH Smith in this market.
He said 'We believe that the existing MBO bid from the Ottakar's management team is likely to be pitched around the 360-370p mark. HMV would therefore probably have to pay 385p or more to put some clear water between themselves and the opposition. A deal at this level would certainly be earnings enhancing from HMV's viewpoint.'
Davies noted that the announcement improves the chances of shareholders receiving a genuine offer for the business. If so, the management team might be inclined to withdraw their own offer.
He said: 'Were HMV to offer 385p then Philip Dunne and James Heneage would be able to cash in their combined 15% stake in Ottakar's for some£13m now, rather than having to run a VC-owned for several years before they make a real rather than a paper profit.'
No comments yet