Alexander Mamut promises to refocus Waterstone's as local bookseller ? and will install Daunt Books founder to run it
The cash-strapped HMV retail chain clinched a deal on Friday to sell its Waterstone's bookshops to the Russian billionaire Alexander Mamut for �53m.
The sale, which is vital to secure the future of HMV, came as the music group revealed its finances had deteriorated further since the start of the year.
HMV has been hammered by the economic downturn and a sea change in the industry that has seen consumers shun its shops and turn to the internet for CDs and DVDs. The group also faces intense competition from supermarkets.
Mamut, a 6.7% shareholder in HMV, is parachuting in James Daunt, founder of the upmarket independent London chain Daunt Books, as managing director. Despite earlier speculation, it is understood there will be no role for Tim Waterstone, who founded the chain that bears his name 30 years ago. It was thought he could become chairman.
Daunt said his vision for Waterstone's was a return to the model of local expertise that drove the chain's spectacular growth after it was founded in 1982. "All of us want to walk into a bookshop that lifts our spirits," he said. "A central element of my philosophy ? which you can see with Daunt Books ? is that you have bookshops which mirror the tastes of your customers as closely as possible."
But some analysts questioned how Daunt, who has previously insisted that discounting is unnecessary if shops offer good service, would run a mass market retailer with 300 stores at a time when competition from the internet was intensifying. He has also criticised T-shirt-wearing staff who are not passionate about the products they are selling. "This could be quite tricky for him," said one observer.
The sale of Waterstone's has been welcomed across the book trade. Gail Rebuck, chair of publisher Random House, welcomed the announcement, calling it "good news for the publishing industry and for booklovers alike". She described Daunt as "someone with books in his very soul".
Daunt is confident that he can hold his own in the corporate world. A former banker, he said his time at JP Morgan had given him a training, a discipline and an "interest in how large companies work", which is "clearly important". He added: "How useful it is I'm going to find out."
HMV said on Friday that sales in the past three months had fallen 15% compared with last year, while Waterstone's saw a decline of 8% in the same period.
Analysts reckon HMV may still have to go through a company voluntary arrangement ? a legal deal with its shop landlords ? to free it from its most onerous leases before it can reach a new agreement with its banks. It may also need to launch a rescue rights issue to restore its balance sheet, although one big City shareholder said they "are not keen to throw good money after bad".
Nick Bubb, a retail analyst at Arden Partners ,said HMV was not out of the woods yet and that even though it had got a higher price for Waterstone's than some forecasts, "debt has ballooned to more than four times its market capitalisation".
The sale of Waterstone's, which employs 4,500 staff, could provide a vital breathing space for HMV's chief executive, Simon Fox, as he continues to seek new borrowing terms from the firm's banks after the dire trading results left the business at risk of breaching its loan covenants. The deal is conditional on HMV agreeing a new lending agreement with its banks and is subject to approval by the pensions regulator. HMV's lenders are led by Lloyds Banking Group and Royal Bank of Scotland.
Fox said HMV's new strategy was to focus on building technology sales, including headphones, iPods and tablet computers such as the iPad. He said six stores using a new technology-led format had outperformed, and he wants another 150 shops to adopt the "new focus" by the autumn.
HMV plans to close 40 shops to pare its overheads. It is also looking at a sale of its Canadian business.
Source: http://www.guardian.co.uk/business/2011/may/20/hmv-sells-waterstones-russian-billionaire
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