Waterstones to be sold as HMV struggles with cash shortfall

Back in January we asked what strategy should HMV employ next in order to create a viable long term business. The next move has proven to be selling its Waterstone’s book chain to a fund controlled by a Russian billionaire (who already owns 6% of HMV) for £53m.

According to the BBC the troubled retailer has been struggling to cope with declining sales in the face of increasingly fierce competition from supermarkets and online retailers such as Amazon and iTunes.

It announced that for the 12 months to the end of April 2011 sales slumped by 13.7%. Like-for-like sales at Waterstone’s fell by 3.8% over the same period. HMV has estimated debts of £130m and is under pressure from its bankers to raise cash. Only last month it said it expected annual profits to be about 25% lower than it had hoped. HMV said it had little choice but to sell the book chain.

This seems like a sad case of a business having to liquidate assets to pay back debts, or according to a company statement, “It has become clear that the group needs to reduce its borrowing requirements in the short term in order to achieve a satisfactory refinancing.”

In the UK and Ireland, the group owns about 285 HMV stores, but is in process of closing 60 of these as part of its cost-cutting plans. Let’s see what happens next.