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HMV share price up, are private equity bid rumours credible?

By | Published on Monday 21 June 2010

HMV’s share price jumped 8% on Friday despite the music company making no real big announcements, leading some to speculate that rumours that someone out there in private equity land is about to bid to buy the live, management and retail group are true.

In its coverage of HMV’s share price rise – it was up 12% over the week – the Mail points out that takeover rumours remain sketchy, and that last week’s rise may simply be because City types have recognised they have been unfair to the music firm in recent months.

A slowing down of sales in HMV’s stores at the start of the year caused the firm’s share price to wobble, even though some music industry experts reckon HMV CEO Simon Fox’s diversification strategy, especially the acquisition of the buoyant MAMA Group, means the company’s fortunes are no longer exclusively tied to the foibles of the still gloomy high street retail sector, and that the firm should therefore, in theory at least, have a better share price.

As previously reported, there has been speculation HMV is a hot target for private equity for a few months now, partly because the firm’s share price is relatively low, even despite last week’s rise.

If you are of the opinion that that is because City types unfairly still treat HMV as primarily a retail organisation, rather than a multifaceted entertainment group, and that in doing so said City types are undervaluing the HMV company… well, that makes it an attractive buy for a bullish private equity group.  If only Terra Firma had waited three years before jumping into the music business.