TORONTO - Financially troubled music, DVD and book retailer HMV is pondering the sale of its Canadian stores to pay off its staggering debts as it increasingly becomes a victim of the digital download age.
The British company says it hasn't had any offers yet, but is exploring its strategic options regarding HMV Canada and its British bookstore unit Waterstone's.
"The HMV business in Canada used to be quite profitable. It used to make about six million pounds in profits-- that's going back a couple of years. The sad fact is that it's not making any money now," said Nick Bubb, a retail analyst at Arden Partners in London.
"I don't think it has great value, which is kind of a problem for HMV, which given their core U.K. problems, they can probably do without."
HMV Group (LSE:HMV) is drowning in the equivalent of $204 million in debt, and revealed earlier this month that it will not be able to meet its loan and overdraft terms when it reports results for the year ending in April.
The company's shares have been falling in recent years as it struggles through increasing competition from digital download websites like iTunes, and large retail competitors like Amazon and Walmart.
HMV has tried to survive by offering a wider range of products including a bigger selection of DVDs and headphones, launching an online music store last July, and inking a partnership to sell Mobilicity cell phones in its stores.
However, its 125 Canadian locations do little better than break even, said John Stevenson, a retail analyst at Peel Hunt in London.
"The problem is not management's efforts to push change through the business, rather that the underlying product markets are moving faster than the changes. It will be helping, but just not enough to offset the decline in DVD and music," he said.
"If HMV Canada is sold, it is more a reflection of a lack of strategic options to raise money, rather than a particular statement about the success or otherwise of the Canadian operations."
But the parent company is going to have a tough time finding a buyer who wants the troubled business, said Bubb.
There isn't much information available on the Canadian unit's financial numbers so it's hard to determine a possible selling price, analysts said.
British news reports suggest that Waterstone's founder, Tim Waterstone, and Russian billionaire Alexander Mamut are interested in the book chain. Mamut, the co-owner of Russia's Evroset cell-phone retail chain and blogging site livejournal.com, currently owns six per cent of HMV.
Hilco U.K., known for targeting faltering retail chains and restructuring them, is a rumoured buyer for the Canadian stores, but Bubb said the firm wouldn't be willing to pay much.
"They just hope to do a deal and then run the business down, and then strip some cash out of it, so HMV will be lucky to get nothing for it," Bubb said.
"(HMV) may have to pay someone like Hilco some money to take it off their hands."
In a statement released Friday, the company said there is no certainty that a transaction will happen at all.
"The group's lending banks continue to be supportive, our banking facilities remain fully available and the group is continuing to maintain a regular and constructive dialogue with its lenders," HMV Group said.
A company spokesman said there would be no further comment at this time.
