SHARES in HMV rose 17 per cent yesterday after the music and books retail group admitted that it had received an informal bid approach, understood to be from Permira, the private equity firm.
Permira is swooping while HMV, which owns the Waterstones bookstore chain as well as the HMV music retailer, is highly vulnerable, with Carl Symon, its new chairman, starting work today and Alan Giles, chief executive, due to leave at the end of the year.
The private equity firm is thought to have been working for about six months on a potential offer of about 200p a share, or £800 million, and an indicative offer is expected in the next fortnight. Yesterday the shares finished at 192p.
Permira has already lined up a potential management team. Simon Burke, the former chairman of Hamleys, who worked with Permira on its failed bid for WH Smith, has been advising the private equity firm, but is not thought likely to take a hands-on role if the takeover of HMV is successful.
Shareholders said that HMV’s board would need to act decisively to avoid selling the group on the cheap. One said: “I suspect shareholders would like to see it sold and a proper auction.”
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He added: “What we need is some decisive action a speedy put up or shut up, rather than a long lingering death with months and months of due diligence.”
Another shareholder said: “Given the lack of visibility of earnings, we would be happy with 200p per share.”
Analysts and industry observers suggested that HMV’s board should consider whether more shareholder value could be delivered by a break-up of the company.
Mark Charnock, at Investec, said: “The board should explore the options and what they could get for Waterstones.”
Tim Waterstone, the founder of the chain, who now owns the Daisy & Tom and Early Learning Centre children’s retailers, has made no secret of his hope to buy the chain back one day. Some analysts suggested that WH Smith might be interested.
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One observer said that this strategy could allow HMV to return as much as 70p a share to investors and focus on adapting its business to cope with competition from online retailers, downloads and supermarkets. He said: “I don’t think there will be any other bids. They can either lie down and die and wait to get 200p or put up a defence.”
Blackstone, the American private equity firm, considered and then dismissed a possible bid last year, but sources say that rival private equity firms were likely to be considering making an offer.
Kohlberg Kravis & Roberts considered a bid last year with Roger Flynn, a former BBC executive. The American firm ditched its plans, but some private equity specialists suggested that it might be tempted back into the ring if offered an incentive by HMV’s board.
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In its most famous deal, Permira bought Homebase, the DIY chain, from J Sainsbury in March 2001 and sold it to GUS 18 months later, turning a £442 million profit on a £95 million equity investment. The firm also owns the New Look fashion chain jointly with Apax Partners, although it lost out to rival its private equity firms CVC and Texas Pacific in the battle for Debenhams in 2003. This is set to prove disappointing for Permira as CVC and Texas Pacific prepare to float the retailer for a huge profit. The £800 million leveraged buyout of HMV would require an equity investment of about £250 million by Permira, small change for a firm which raised a €5.1 billion fund 2½ years ago.