Dillons sold for £36m

Thorn EMI, the HMV and Radio Rentals group, bought the 140 Dillons bookstores from the receivers yesterday, in a £36m deal that will safeguard up to 2,500 jobs but leave shareholders with nothing.

The receivers, KPMG, admitted that bids from Dillons management and a venture capital group advised by Terry Maher, the former Pentos chairman, had been higher but had certain conditions attached.

Stephen James, joint administrative receiver, explained: "It is not the highest bid we received but it was the best because there is an arrangement that will deal with creditors."

Thorn EMI has undertaken to honour debts to trade creditors who have delivered stock, mainly books, worth £29m. The deal reduces the banks' exposure, which had risen to £75m before Pentos, the parent company, collapsed into receivership on Wednesday.

It is understood that other bids could have left publishing suppliers high and dry and destroyed goodwill in the book trade. The receivers said a quick sale had been imperative as suppliers had arrived to collect stock and landlords were threatening to send in the bailiffs.

Of all the bidders, Thorn EMI was the only one that could pay cash immediately, meet supplier commitments and protect jobs, they said

However, Thorn EMI says that though it has acquired all the stores, it will be undertaking an audit of the sites and unwanted stores will return to the receiver. Some closures and job losses are seen as inevitable. Thorn said the deal was part of a strategy review completed last July. "We have been looking at the UK book market for several years," Sir Colin Southgate, Thorn EMI chairman, said.

The Dillons chain will be part of the HMV group, though Thorn stressed yesterday that the Dillons product offer would remain unchanged. "People like Dillons the way it is so we won't be changing it," a spokesman said. The company added that as technology impinged on the book trade, books on CD Rom and other interactive technologies would make Dillons a natural fit with the HMV record stores.

Nick Hawkins, stores analyst at Kleinwort Benson, applauded the deal saying Thorn had picked up Dillons and Hatchards for a good price and would probably try to introduce more music in stores.He added: "I suspect Thorn EMI is interested in publishing and this is a way of getting involved without going the whole hog."

Others expressed reservations. Tony Shiret, of BZW, said Thorn was taking a risk by diving into a market where the possible end of the Net Book Agreement could cause instability. "If the NBA goes, the supermarket operators will come in and margins will fall dramatically," he said.

Asda and Safeway have already challenged the NBA on limited ranges of books in their stores. Tesco has expressed interest in publishing and Sainsbury has had some success with books in its SavaCentre stores.

Thorn EMI claimed to be unworried by the supermarket threat, saying it was well prepared for the end of the NBA.

Rymans, the other core part of the collapsed Pentos, has yet to find a buyer.