Ottakar's Takeover Gets Early OK

by Andrew Rosenheim, PW Daily -- Publishers Weekly, 3/31/2006

Despite intense lobbying from the Society of Authors and Publishers Association, Britain's Competition Commission yesterday gave provisional approval to a proposed takeover of Ottakar's bookstore chain by HMV, the parent company of the country's largest bookseller, Waterstone's. The merged company would have roughly 20% of the retail market for books in the U.K.

The ruling will become final only after a further eight week consultation period, but few observers think it will change. In her ruling, Commission chair Diana Guy rejected the contention of opponents that prices of books would rise as a result of a merger, concluding that increased competition from heavily-discounted online and supermarket sellers make this extremely unlikely. To charges that consumer choice would be reduced because of Waterstone's penchant for centralised buying, the Commission found, instead, that of almost 400,000 titles stocked by Waterstone's 195 stores in 2005, only 5000 titles were bought centrally. Assertions that service levels to customers would suffer in a merger were also given short shrift, since the Commission ruling noted that it is precisely quality of service that will continue to distinguish bookstores from online and supermarket competition.

HMV is thought certain to renew its offer for Ottakar's in the wake of the decision, but on markedly different terms. Since the referral of the bid to the Competition Commission four months ago, Ottakar's has reported a pre-tax loss of £4.6 million for the year ending January 28, and, most damagingly, sales fell 8.1% in the eights weeks to March 25 compared to the same period last year. The original HMV bid of 440p per share is accordingly expected to be cut by up to a third, and the total £96 million package may now be reduced by as much as £30 million.