Embattled retailer HMV Group today said it had agreed a deal to sell its book shop chain Waterstone's to a Russian billionaire for £53 million.
The high street chain said the agreement to sell the business to A&NN Capital Fund Management, in which Alexander Mamut has an interest, was still subject to a number of conditions. Mr Mamut is a friend of Roman Abramovich, the billionaire owner of Chelsea FC.
The company is selling the book store as a condition of negotiations with its lenders, which put back financial tests from the end of April to the beginning of July as the company continued to struggle.
HMV Group, which owns 731 HMV, Waterstone's and Fopp stores, has issued three profit warnings so far this year.
It revealed today that like-for-like sales at HMV's UK and Ireland stores fell by 18.8% in the 17 weeks to the end of April, while Waterstone's saw an 11.3% fall over the same period.
Waterstone's is the UK and Ireland's biggest book shop chain with 296 stores and 4,500 staff, but it has seen a decline in market share as well as poor sales recently.
A&NN will pay for Waterstone's in two tranches, one of £40 million and one of £13 million. The deal will only complete if HMV can renegotiate its bank facilities, though HMV says the banks are supportive of the sale. Pension trustees and the pensions regulator also have to approve.
HMV chief executive Simon Fox said A&NN would be a "good home" for Waterstone's, while the sale will reduce borrowings and enable HMV to focus on plans for transforming the business into a broad-based entertainment business.
Underlying profits this year will be about £28.5 million, HMV said, down from its previous forecast of £30 million, the fourth time this year it has lowered its profit estimates.
A&NN will appoint James Daunt as managing director of Waterstone's once the deal completes. Mr Daunt currently runs Daunt Books, a small chain of London-based bookshops he founded in 1990.
He will undertake a comprehensive review of the business and operations of Waterstone's.
Mr Mamut said: "The opportunity ahead to reposition Waterstone's as a regional and local community-orientated bookseller is an exciting one. The business enjoys a great loyalty from its customers and I believe that there is considerable integrity and value in the brand."
A&NN, his investment vehicle, already has an interest in a Moscow bookstore chain called Bookberry, as well as Russian publisher Azbuka-Atticus, mobile phone handset retailer Euroset and social network site LiveJournal.
"This is an important investment from A&NN, which will secure a dynamic future for the UK's largest bookshop chain," added Mr Daunt.
HMV chief executive Simon Fox blamed the sharp decline in sales at the core business on weak entertainment market trends.
Earlier this year it said DVD and computer games revenues had been badly hit by the move towards downloading, while the growth in ebooks, such as Amazon's Kindle, has knocked Waterstone's.
The live entertainment division, HMV Live, was the best performer with sales up by nearly 16% following the successful opening of G-A-Y in Manchester. HMV will open the Ritz, also in Manchester, in the autumn.
The decline in sales pushed borrowings up to £170 million at the end of April, £40 million higher than the group had previously forecast.
A "tightening supplier credit environment" also pushed up debts, though the firm expects this pressure to ease once the deal to sell Waterstone's goes through. Discussions with its banks over a refinancing are continuing, HMV added, but terms have yet to be agreed.