Bum note

9 May 2006 By John Foley Follow @johnsfoley

The music and book retailer is being scalped on the UK high street. And there s still no sign of a compelling turnaround plan. With the shares 20% below Permira s 210p lapsed offer and no other bids on the table, HMV s decision to rebuff private equity looks unwise.

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HMV, the music and books retailer, reported likeforlike sales down 5.7% for the year ending April 26. In the UK, sales at the HMV music business fell 10.8% on a likeforlike basis, reflecting continuing competition from supermarkets, online retailers and digital downloading.

In March, HMV's board rejected a conditional offer from Permira, the private equity firm, of 210p a share. It said that the offer, worth 11.7 times forecast earnings for next year, undervalued the medium and long term prospects of the business.

In April, Tim Waterstone offered £280m to buy the Waterstone's book chain. The deal fell through on disagreements over the terms of the offer, and Waterstone's backers, Lazard Private Equity, withdrew their support.

On May 22, the Competition Commission plans to say whether HMV can buy rival book chain Ottakar's, which owns 140 stores in the UK. It gave provisional clearance in March. HMV has not decided whether to proceed with a bid if the deal is approved.

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