Bloomsbury, the book publisher behind the Harry Potter phenomenon, may have to return its £50m cash pile to shareholders if it does not find an acquisition target.

Bloomsbury's house broker, Dresdner Kleinwort Wasserstein, said a takeover of a US rival was the company's best option for spending its cash. But it will face shareholder pressure to launch a share buyback programme or offer a special dividend if it does not succeed. Bloomsbury has made no secret of its desire to buy an American children's publisher but believes potential targets are overvalued.

Richard Menzies-Gow, analyst at DKW, said how the company used its cash would be "critical" to its share price performance this year and shareholder pressure would become "much more prominent" if a takeover remained elusive.

"If they cannot find the right deal then the alternative is to give the money back to shareholders," he said. "If you sit on £50m, you are not going to make much of a return. This year they probably need to show what they are doing with it."

DKW made its comments after Bloomsbury issued a trading update yesterday. The company said pre-tax profits for 2005, when it published the sixth book in the Harry Potter series, would be "not less" than £20m, in line with expectations. It said sales of the latest Harry Potter book, the Half-Blood Prince, were "strong" and also in line with expectations. JK Rowling, the author of the Harry Potter series, has announced that she has started writing the seventh and final instalment in the child wizard saga, opening the possibility of it being published next year.

Shares in Bloomsbury gained 2.25p yesterday, closing at 335.75p and valuing the company at £242m.