Tim Waterstone, who founded the Waterstone’s bookseller chain in the 1980s, has regained control of his company from WH Smith through a deal which brings together Waterstone’s, its competitor Dillons and the HMV music and video store chain. The GBP800 million (ecu 1.2 billion) deal was a joint venture between Advent International and music group EMI, and features a planned GBP200 million high-yield bond issue.
The three acquired businesses have been brought together in a new group, HMV Media. EMI, which received GBP326.5 million cash for the Dillons and HMV chains, owns 42.5% of the new company, alongside Advent International, also with 42.5%. Management holds 9%, with a further 6% reserved for management incentives. EMI’s interest in HMV Media is valued at GBP87.5 million, and the music group will also receive a GBP25 million bonus when the new concern is floated or sold: HMV Media is currently tipped for flotation within 18 months to two years.
Lead arranger Merrill Lynch and SBC Warburg Dillon Read have arranged GBP500 million senior debt. The planned high-yield issue, to refinance a GBP200 million bridge loan from EMI, will be led by Merrill Lynch and co-managed by SBC Warburg Dillon Read.
Tim Waterstone’s first attempt to regain control of Waterstone’s came last autumn, when he unveiled plans for a hostile takeover bid for WH Smith. The retailing group later announced its intention to offer Waterstone’s for sale as part of a restructuring programme. HMV Media paid WH Smith GBP300 million for the Waterstone’s chain.
As chairman of HMV Media, Tim Waterstone holds a 5% stake in the group, which will acquire another of his ventures, the Daisy & Tom children’s stores in London and Manchester, for GBP12 million. Waterstone’s managing director Alan Giles and HMV chief executive Stuart McAllister, will serve as joint chief executives of HMV Media.
HMV Media has a strong position in each of its three markets and predicts operating profits of around GBP107 million for the year to end March. However, this GBP800 million deal has been completed just as the arrival of US booksellers is expected to intensify competition in the UK book, music and video retailing markets, and as the end of the net book agreement has opened the way for deep discounting in the books market.