Ottakar’s board backs rival offer

THE board of Ottakar’s has backed HMV’s bid for the book store group, dashing the hopes of founder and chief executive James Heneage, who had originally secured the support of the board for a management buyout.

When HMV, owner of Waterstone’s, formally launched its 440p-a-share offer last week the board had refused to back the deal. It said that before it dropped its recommendation for the 400p-a-share offer from the management it wanted clarification from HMV about a condition that its offer would lapse if the deal was referred by the Office of Fair Trading to the Competition Commission.

If HMV is successful, its share of the book market will jump from 15.7pc to 23.6pc, according to market research company TNS – perilously close to the 25pc that would make a referral automatic.

David Adams, a non-executive director of Ottakar’s, said: “On a balance of probability our commercial judgment is that the deal will not be referred.” The OFT is notoriously unpredictable in its decisions, but Mr Adams said the board had taken advice from a competition lawyer.

Only 31 of Waterstone’s 164 stores are in close proximity to an Ottakar’s outlet. Paul Smiddy, analyst at RW Baird, said: “In a very worst case scenario, selling 31 stores is not very onerous.”

City analysts believe that the Ottakar’s management team will not be able to raise the extra fi nance needed to submit a rival bid.

The management team needs to raise its offer to 462p before Framlington, which owns 13.6pc of the shares, switches allegiance from HMV.

The management team refused to comment about its plans but someone close to Mr Heneage said: “He’s lived and breathed Ottakar’s for years. He’d like not to lose it. It’s his baby. He made the call at the start of this that no one else would come in and bid, and they have.”

Michael Hitchcock, the company’s fi nance director and part of the management bidding team, insisted that Ottakar’s customers would prefer the company to stay independent. “ Anecdotally, going into the stores, without exception that’s what they want. Culturally we and Waterstone’s are very different,” he said.

Mr Adams admitted that the board was in talks with at least two other potential trade bidders, one of whom was undertaking due diligence. This is widely believed to be Borders or WH Smith, neither of whom would comment.

Ottakar’s shares closed up 1 ½ to 440½p. PA/ COLLEGE HILL