Struggling music retailer HMV, which owns the Waterstone's chain, has three weeks in which to decide whether to relaunch its £96.4m bid for Ottakar's, after yesterday's formal clearance for the deal from the Competition Commission.
A merger of the two "would not lead to a substantial lessening of competition in the market for the retail sale of new books to consumers in any part of the UK", the commission said in its ruling. The decision, which confirmed the commission's preliminary findings, has dismayed many authors and publishers. They argued hard for the deal to be blocked, fearing it will make it harder for new and specialist authors to get their books on the shelves. Children's writer Philip Pullman and Tracy Chevalier, author of Girl with a Pearl Earring, were among those who spoke out.
HMV has 21 days in which to decide not only whether it wants to press ahead with a new offer, but also how much it is prepared to pay for Ottakar's, which has suffered a substantial fall-off in sales since the 440p-a-share terms were agreed last year. Its decision on what to pay for Ottakar's is complicated by the widespread belief in the market that WH Smith is preparing to mount its own bid.
Most analysts expect HMV to bid again, reducing its terms to 350p a share, valuing Ottakar's at £77m. But Nick Bubb, of Evolution, reckons HMV might go as low as 300p a share, cutting the value of the offer to £66m. He said: "Ottakar's itself is desperate to sell out and is in no position to argue." Mr Bubb is not convinced WH Smith will enter the fray, saying chief executive Kate Swann would rather push ahead with her own agenda. Richard Ratner, at Seymour Pierce, takes the opposite view and says that a bid battle between HMV and WH Smith could push the price for Ottakar's to nearer 400p a share. There have also been rumours that the US books chain Borders could be interested.
Shares in Ottakar's jumped 13p to 332p as the market prepared itself for a bid battle in the coming weeks. HMV eased 2.75p to 174p. The group has been facing its own trading problems and warned earlier this week that profits for the year to April 29 will tumble from £129.3m to about £98m before tax and exceptional items.
Already this year it has fought off a £843m takeover approach from the private equity firm Permira and rejected a short-lived £280m approach for Waterstone's from founder Tim Waterstone.
WH Smith declined to make any comment yesterday and HMV said it continues to consider its position. Ottakar's welcomed the commission's decision.
