Entertainment retailer HMV Group has reached an agreement to sell its ailing bookselling arm Waterstone’s for £53 million.
A&NN Capital Fund Management Limited, a company in which Russian billionaire and current HMV Group shareholder Alexander Mamut has a major interest, is expected to acquire the business by the end of June, providing much needed funds for HMV as it looks to reposition its business and focus on its live events division.
Some 15 Waterstone’s stores have already closed since the start of the year as part of HMV Group’s restructuring plans, leaving 296 outlets remaining in the UK and Ireland, and the bookseller currently employs 4,500 staff.
Many employees will now be concerned about their jobs as the retailer’s future under new owners remains unclear.
Turning around the fortunes of the company will be a tough task for A&NN, with an HMV Group trading update published today showing that like-for-like sales at Waterstone’s fell 8.4 per cent in the 17 weeks to April 30th and were down 3.8 per cent for the full year to that date.
In the last full financial year Waterstone’s generated revenue of £514 million and trading profit before exceptional items of £2.8 million, and had gross assets of £283 million at the time, but the market has become even tougher in the last 12 months.
Retail Gazette also understands that the retailer’s recently introduced initiative to sell non-book products has not gone to plan, with half of the 3,000 items purchased yet to reach stores.
HMV Group’s decision to sell off Waterstone’s comes after it confirmed in March that it did not expect to meet certain covenant tests in its existing bank facility, and the disposal of one part of its business should reduce borrowing requirements to aid the refinancing process.
CEO of HMV Group Simon Fox said: “Having fully explored the options available to it, the board believes that a sale of Waterstone’s to Alexander Mamut provides a good new home for the business.
“We expect this deal to enable the group to achieve a reduction in its borrowing requirements, and, in turn, focus on plans for transforming the HMV Group into a broad-based entertainment business.”
Both Fox and Mamut are confident that Waterstone’s still has a future in the UK, despite the rising popularity of e-books for use on tablet devices and the general decline in high street retailing.
E-tail giant Amazon.com, which has grown considerably in the last decade as Waterstone’s sales have declined, announced yesterday that it is now selling more e-books than print books less than four years after introducing the digital variety, which highlights how quickly bookselling has changed.
Waterstone’s does already sell e-books, but will need to focus on developing this area of the business further under its new ownership to meet growing consumer demand.
Mamut commented: “We are extremely pleased to have reached an agreement to acquire Waterstone’s and its great heritage.
“I believe that our investment and strategy will secure a dynamic future for the UK’s largest bookshop chain and I look forward to working with its booksellers in building on the principle of excellent bookselling which is at the very heart of the business.”
Matt Piner, Senior Retail Analyst at Verdict Research, believes that the acquisition of Waterstone’s represents a gamble on Mamut’s behalf.
“Physical book stores have more of a lure than music stores, but this has not stopped them losing share to Amazon, supermarkets and latterly, e-readers and kindles,” he explained.
“Mamut has shown real belief in the value of being the last man standing. In order for his investment to be successful he will have to continue restoring the specialist appeal of Waterstones, as well as finding ways of ensuring it remains relevant as the digital market in particular continues to grow.”