1 - Shareholder Value

HMV announced the appointment of insolvency administrator in January 2013 and has attempted  to find a buyer to sell its business. The reason why HMV wants to sell its business to another person is because the business went declined in last few years, there are huge amount of unpaid debt and the company's shares are suspended. many Customers are able to choose where they could buy their music and video products, such as using iTunes and Amazon online sites as technology is becoming more advance and customers are adapting to changes. As technology gets improve, piracy has become another big problem, there are many illegal downloads and thus customers are not purchasing in stores.
 
HMV now has more than 230 stores in the UK and other countries and recruiting more than 4,000 employees in the UK, if HMV go bankrupt, it would cause 4,000 employees lost their job and also damage shareholder wealth. This is not a first time that HMV seeks for a buyer. In 2005, private equity firm, Permira offered £847 million bid approach, however HMV rejected it as HMV said the offer was still undervalued. Currently, it is now estimated that the value of HMV is £4.7 million from London Stock Market of closing price of 1.1 penny. If HMV accepted the bid of £847 million, it would maximise its business and shareholders wealth.
 
Since 2005, HMV tried to survive however due to the advance technology HMV has gained no competitive advantages to others, more and more customers can use other methods to buy musical and video products. HMV now faces a market shock that may force managers to focus purely on short-term issues to ensure the continuance of the business. However, since 2005, suffering shareholders may have already recognized this and diversify their investments in other business. Therefore, if HMV goes bankrupt shareholders may be disappointed but they still have other companies’ shares to fall back on.
 
The strategy HMV’s used has not been identified clearly and has therefore damaged its business and shareholders. HMV should have been aware to the changes in the market and they did not make any strategic move for their business. As a result, many convenience stores such as iTunes, has been taken lot of customers from HMV. This may be relate to HMV’s management team and links to managerialisim. As the company is seeking to survive, they have only paid attention on short term benefits which is to survive and not has not much focus on long term strategy. For example, HMV has offered many promotion in past few years, and can consider that HMV is not earning much profit as there are also maintenance expenditures. Therefore, shareholders are not gaining anthing.
 
Recently, there is an organisation (Hilco) which wants to acquire HMV, Hilco is a retail of restructuring group and private equity veteran and Hilco also owned HMV in Canada. From this purchase HMV may survive longer, however HMV will have difficulty to gain profit even if they succeed in getting back in the market, and shareholder’s trust will also be difficult to gain back.
 
To sum up, from 2005 survival to 2013, HMV cannot maintain the company’s profit and cannot maximise shareholders wealth, it  has also damaged the public's view on HMV which cannot fulfill shareholders wealth and also the value of the company has been damaged.