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Last Updated: Wednesday, 31 May 2006, 09:20 GMT 10:20 UK
Ottakar's agrees to HMV takeover
Ottakar's store
Ottakar's has 141 stores in the UK
Music and book retailer HMV has agreed to buy bookseller Ottakar's in a deal worth 62.8m ($118.3m).

HMV, which owns the Waterstone's book chain, is to pay 285 pence per share for Ottakar's, less than Tuesday's closing price of 287p a share.

Ottakar's chairman Philip Dunne said competition from the internet and supermarkets was hitting booksellers.

HMV said the combination of Ottakar's and Waterstone's would create an "exciting, quality bookseller".

'Fair' offer

"Over the past year the book market has undergone a significant change, with new levels of competition from the supermarkets and online retailers impacting all specialist booksellers and in particular those with insufficient scale to compete on equal terms," said Ottakar's chairman Philip Dunne.

He added that the HMV offer was "fair and reasonable" given "the costs and risks associated with implementing the necessary restructuring programme to compete longer term".

The Ottakar's store portfolio is highly complementary to that of Waterstone's
Alan Giles, HMV chief executive

In September last year, Ottakar's accepted a 440p-per-share offer from HMV which valued the bookseller at 96.4m, but the bid lapsed after it was referred to competition authorities.

HMV's approach for Ottakar's was criticised by authors and publishers who argued that a takeover would reduce choice on the High Street.

But earlier this month, the Competition Commission cleared the way for a fresh bid after concluding that a deal would not lead to a "substantial lessening of competition".

However, while the commission's inquiry was taking place, sales at Ottakar's bookstores continued to drop. Last week, Ottakar's said that like-for-like sales - which strip out the effect of new store openings - were down 8% in the 16 weeks to 20 May.

As a result, it had been widely expected that if HMV did come back with a new bid, it would be at a much lower level than the original offer.

Good fit

The Ottakar's business has 141 stores in the UK, while there are 195 Waterstone's outlets.

"The Ottakar's store portfolio is highly complementary to that of Waterstone's, and will benefit from the introduction of Waterstone's proven, sophisticated stock management systems," said HMV chief executive Alan Giles.

"This will enable Ottakar's to offer an even wider and more relevant range of books."

In 2005, the two chains together had about 22% of the UK book market, according to the Competition Commission.

Supermarkets had 8% of the market, while internet book sales accounted for 12%, the commission found.

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