HMV ‘Targeted by Vulture Fund Apollo Global Management’

Struggling UK high street music and DVDs retailer HMV, which last week warned that it might not be able to cover its bank loan repayments following weak pre-Christmas sales, could be taken over by investment business Apollo Global Management according to reports.

The New York-based group, often described as a ‘vulture fund, has acquired 10% of HMV’s debt in a move that could lead to a takeover. Although HMV is now valued at no more than £10m on the stock market, buying its debt is widely regarded as a cheaper way of taking over the company.

HMV has increasingly suffered from the increasing competition posed by online retailers such as Amazon and music downloading offers from Apple in recent years. Despite strong support from its suppliers, it has sold off a number of stores and most recently reported an H1 loss of £37.3m as it warned about meeting its banking covenants in early 2013. Total sales for H2 of 2102 fell by 13.5% to £288.6m, from £333.7m in the same period last year.

The company admitted that “current trading conditions result in material uncertainties facing the business”, and said it was in discussions with its banks about lending.

“Whilst I can see many future opportunities it is clear to me that the current market conditions, and in particular the volatility in the group’s core music, visual and games markets, create uncertainty as to the level of trading results that can be achieved in the year ahead,” said HMV’s chief executive officer (CEO), Trevor Moore.

“However, the group is currently operating within the terms of its banking facility and the directors continue to maintain regular and constructive discussions with the group’s banks. The directors believe that the group will be able to meet their liabilities as they fall due, including the £30m amortisation payment due in January 2013, and will have adequate resources to continue in operational existence for the foreseeable future.”

If Apollo is to use its position as a creditor to HMV to leverage control of the company it may need to buy more of HMV’s discounted debt, following last week’s deal with Allied Irish Banks (AIB).

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