HMV shares bounce as Waterstone's sale flagged

HMV is moving closer to a sale of its flagship bookseller Waterstone’s to rescue the business, it has confirmed.

Its shares have bounced almost nine per cent after the board issued a statement confirming it is “exploring strategic options in respect of Waterstone’s and HMV Canada.”

The announcement also for the first time reassured the market that HMV’s ongoing discussions with its lenders, which include RBS and Lloyds, were positive and the banks were not threatening to withdraw their lending facilities.

“The Group’s lending banks continue to be supportive, our banking facilities remain fully available and the Group is continuing to maintain a regular and constructive dialogue with its lenders,” it said.

HMV made a major presentation on its turnaround strategy to banks earlier this week as it works to renegotiate a £240m debt facility.

It has said it will struggle to comply with a bank covenant that falls in April, which specifies that its earnings before interest, taxes, depreciation and amortisation must be greater than its annual rent bill.

Sources close to the company told City A.M. the banks had not forced HMV to consider the sale of Waterstones or HMV Canada to cut its debt.

But Arden Partners analyst Nick Bubb said HMV had proposed ambitious profit targets at its 2010 strategy day exactly a year ago and had given investors no warning of the prospect of a 15 per cent fall in like-for-like sales in the year to date.

He said a share placement looked highly likely as he forecasts the group’s profit before tax to halve in the 2011-12 fiscal year as it had in 2010.

“We can’t tell you what EPS that will give because we don’t yet know how many shares will be in issue after the upcoming rescue share placing,” he said.