After reports earlier this evening of a crunch board meeting, the HMV Group has just issued a statement confirming that administrators will be called into the faltering entertainment retailer tomorrow morning.
That decision follows the admission last month that the retail firm was likely to fail to meet covenant tests linked to its sizeable bank loans later this month. Frantic talks have been ongoing for weeks with money lenders and, when those failed, reports suggest HMV management made one last plea to its suppliers, in particular the major record companies and DVD distributors, about them helping the UK’s final national specialist entertainment retailer restructure its finances. While said suppliers had helped keep HMV in business in the run up to Christmas by providing incredibly favourable terms over stock, further assistance wasn’t forthcoming.
In a statement this evening, the HMV board said: “On 13 December 2012, the Company announced that as a result of current market trading conditions, the Company faced material uncertainties and that it was probable that the Group would not comply with its banking covenants at the end of January 2013. The Company also stated that it was in discussions with its banks”.
It continued: “Since that date, the Company has continued the discussions with its banks and other key stakeholders to remedy the imminent covenant breach. However, the Board regrets to announce that it has been unable to reach a position where it feels able to continue to trade outside of insolvency protection, and in the circumstances therefore intends to file notice to appoint administrators to the Company and certain of its subsidiaries with immediate effect”.
And concluded: “The Directors of the Company understand that it is the intention of the administrators, once appointed, to continue to trade whilst they seek a purchaser for the business. It is proposed that Nick Edwards, Neville Kahn and Rob Harding, partners of Deloitte LLP, will be appointed as the administrators of the Company and certain of its subsidiaries. The Company’s ordinary shares will be suspended from trading on the London Stock Exchange with immediate effect”.
Few expect administrators to be able to sell HMV as a going concern. According to Reuters, Apollo, the US investment firm that at one point was trying to buy up HMV’s debts, had already backed away from trying to seize control of the company by yesterday afternoon, and its intent for HMV was never really known anyway. And unless a big bidder does come out of the shadows, then the administrators’ work will really be about securing maximum return from the retailer’s few remaining assets, the most valuable of which is its stake in digital music company 7digital. Assuming that is so, that puts over 200+ stores, including eight operating under the Fopp brand, and over 4000 jobs at risk.
And while in many ways a long time coming, HMV’s demise will also put new pressure on the wider music and film sectors. In terms of national chains, HMV’s stores are, of course, the final high street home, and impulse-buy destination, for British record and DVD companies, for whom physical product sales still generate 62% and 93.9% of revenues respectively. Meanwhile Universal Music could find itself saddled with a £150 million liability as the guarantor on about forty HMV leases, liabilities it acquired through its acquisition last year of EMI (of which HMV was once a subsidiary).
More on all this when we get it…
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