Shares in HMV, the troubled music and books group, soared yesterday after it confirmed it had received a bid approach, which is thought to have come from the private-equity group Permira and could value the company at £800m.
The stock jumped 27.75p to 192p, giving the company a market value of £773m. The shares have fallen in recent months and ended last week near a two-year low.
HMV, which owns Waterstone's book chain, said it had received a sketchy preliminary approach on Sunday and was awaiting a more detailed proposal from the bidder. "The ball is very much in their court," an HMV spokesman said.
The announcement could spark a bidding war for the retailer as other private-equity groups are thought to be interested. Permira is understood to have appointed Merrill Lynch to advise on a bid, which would value HMV at about 200p a share. HMV is being advised by its brokers, Citigroup and UBS.
Analysts at Numis said: "Our initial reaction is one of scepticism that a deal could be completed at these levels. We have talked on numerous occasions about the competitive pressures HMV is facing right now and which are only going to get worse over time. From a private-equity point of view, the biggest hurdle is who they are going to sell the business to in two or three yearsto generate their required returns."
Numis warned that the HMV stores would be "a shadow of their former selves by then" if consumers continued to download music and videos from the internet, and if the DVD market slowed further.
HMV suffered badly over Christmas when it was forced to sacrifice its margin and slash prices of thousands of DVDs, CDs and books. The chief executive Alan Giles blamed the poor performance on intense competition from internet rivals and discounting from supermarkets such as Tesco.
Mr Giles' decision to resign this month shocked the City and further undermined investor confidence in the company's future. His departure came alongside the group's worst results since its flotation in May 2002. Pre-tax profits in the first half were virtually wiped out.
HMV is still keen to buy the Ottakar's book chain and awaits a decision from the Competition Commission. Analysts reckon a Permira takeover of HMV would reduce the chances of a bid for Ottakar's.Reuse content