Music-to-books retailer HMV has ramped up its bid to capture more of the entertainment pound with a deal to buy the company behind some of the UK's best-known live venues, including London's Jazz Cafe.
If successful, the proposed buyout of Mama, already HMV's joint-venture partner on a number of venues, will give the company a bigger slice of the thriving live events market. It is paying £46m to trump a bid by a rival shareholder and secure a business that also includes the Edinburgh Picture House and the representation for big-name artists, including Franz Ferdinand.
The offer, which comes at the retailer's most frantic time of the year, has the full support of Mama's board. The directors' acceptance added to assurances from Schroder Investment Management and Herald Investment Trust, as well as HMV's own 9.9% stake, means that the retailer can already count on support equivalent to 33.8% of Mama's shares.
If HMV can clinch the deal, it will be a major boost to chief executive Simon Fox's overhaul of the company, which also includes the struggling Waterstone's bookseller. Started two years ago, his turnaround plan has focused on diversifying revenue streams away from traditional retail. Yesterday he said he was "delighted" to have agreed the recommended Mama offer.
"Our joint-venture has worked well since its formation and the full combination of HMV and Mama will enable us to accelerate our growth into live music," Fox added.
Adam Driscoll and Dean James, co-chief executives of Mama, also welcomed the prospect of an HMV tie-up. It will build on last January's deal, when the retailer paid £18.25m for a 50% share in Mean Fiddler, a Mama venture that owns 11 venues.
"Mama's activities in the live music market have demonstrated rapid growth. We were excited about the opportunities that were created when we entered into the joint-venture with HMV in January. That operation has worked extremely well and we believe there are even greater opportunities to develop and evolve the live-music operations, alongside our artist services business, within the HMV group of businesses," they said.
At 5.4p per Mama share, HMV's offer is at a premium of around 23% to the price before a bid from Mama's largest shareholder, SMS Finance. But the HMV deal is by no means assured. SMS has already improved its original offer once to 4.75p per share, or £38.4m. It holds 29.8% of Mama and another third of shareholders are as yet undecided on HMV's proposal.
Analyst Peter Smedley at Charles Stanley Securities predicted that HMV's offer may well need to be improved.
"We think that SMS Finance is determined, given its recent actions, so we would not be surprised if HMV Group has to pay more than the offered 5.4p per share for Mama Group to secure SMS's acceptance of the offer," he said in a note to clients.
Smedley noted that live music is the "fastest-growing area of the UK music value chain" and Mama would give HMV an important role in that market. "We see such an acquisition as yet another important step in HMV Group's transformation as it seeks to capture more of the consumer "entertainment" wallet," he added.
HMV already profits from ticket and merchandise sales via its existing partnership with Mama. By buying the company it will also acquire an artist management business that represents big-name acts, including White Lies and Kaiser Chiefs.
Increasingly Mama's live-music business has been focusing on changing the way fans buy music. By promoting albums and singles alongside gigs, it has been encouraging artists and managers to see concert halls as a place to sell their recorded music – the branch of the music industry most damaged by rampant online piracy. HMV yesterday highlighted the potential to build on the compatibility of live and recorded revenue streams and promised to accelerate the growth of Mama's live venues and its festivals business.
Fox's drive to diversify HMV saw the company recently buy half of music business 7digital, open a cinema in south-west London and do a deal with online ticket exchange Seatwave. He has also introduced smoothie bars and gaming areas to new generation shops and overhauled the company's online stores.
