HMV dealt hefty blow in £78m Ottakar's bid battle

HMV's hopes of acquiring Ottakar's lay in tatters last night after the bookshop chain's management tabled a recommended 350p-per-share bid and revealed they had poached the top man at Waterstone's, part of the music retailer.

Three of Ottakar's directors have teamed up with Phoenix Equity Partners to launch a management buyout that values the bookshop group at £79m. Details of the offer were rushed out after the stock market had closed. Ottakar's said that David Roche, who has been running Waterstone's in the absence of a managing director, would leave its rival to take on the newly created post of chief executive once the bid has been accepted.

But analysts lambasted the offer for being too low to sway shareholders. Shares in Ottakar's, which have climbed steadily in anticipation of a bid battle, rose another 7.5p yesterday to 375p. Paul Smiddy, at Robert W Baird, said: "It's cheekily low. I'm staggered their independent directors have recommended it."

HMV said it had "noted" the offer. When it approached Ottakar's with a possible takeover offer it had no idea that Mr Roche was planning to leave, one source admitted.

James Heneage, Ottakar's managing director who co-founded the chain in 1987, said the sweeping changes the business requires to raise its game would be better implemented in private hands. "In the public domain, investment criteria is shorter term," he said. Asked to respond to criticisms that the business's poor year was linked to this offer, he said: "I've never once in my life run this business down."

The offer has received tacit support from shareholders holding 32 per cent of the stock, including the 15 per cent held by Mr Heneage and Philip Dunne, the chairman who is part of the bidding team. Threadneedle, Aberforth and Graphite have given the bid the nod, but analysts said the group's fate lay in the hands of Morley Fund Management and Framlington, who control 30 per cent.

There were questions last night over the independence of Mark Fane, one of the non-executive directors, who has a long history of working with Mr Dunne.