Book chain Ottakar's directors back HMV in takeover battle

HMV secured crucial allies in its takeover campaign for UK book chain Ottakar’s today when independent directors of the company ditched their support for a management buyout.

The retailer has convinced directors that its £96.4m (€143m) bid will clear any competition hurdles even though combining Ottakar’s with its Waterstone’s stores will create a huge company.

As a result, independent directors of Ottakar’s said they were withdrawing their recommendation of the £91.1m (€135m) offer from James Heneage and Philip Dunne for the book chain they set up in 1987.

The move increases the chances of more investors backing the HMV bid and following the lead of Framlington Investment Management and Morley Fund Management, which own a combined 30% of Ottakar’s.

But the takeover is not a foregone conclusion as independent directors are continuing to talk to parties other than HMV and the management team, but have not yet received any firm proposals.

Analysts believe these talks are unlikely to lead anywhere since a new offer would have to be pitched at 462p per share to persuade Framlington to switch sides, while Morley would only accept 484p per share for its support.

HMV has already challenged the view that its bid would arouse fears of a lessening of competition by pointing to data from market research firm TNS which suggested the enlarged group would have 23.6% of the book market – below the crucial 25% threshold.

HMV has sent a submission to the British Office of Fair Trading supporting its view that a takeover would not give rise to any material competition issues.

The bidding battle for Ottakar’s began last month when Book Store Acquisitions - the bid vehicle of Mr Heneage and Mr Dunne – had a £78.6m (€116.4m) offer accepted. They upped this offer last week in an effort to head off an HMV counterbid.