HMV mulls making a move on Mama Group

The music and video games retailer HMV last night bought an 8.2 per cent stake in Mama, the live music and management group which runs venues including London's Hammersmith Apollo, Jazz Café and Heaven.

The announcement increased speculation that HMV could launch a full bid for Mama, after saying earlier in the day that it was "considering its position" in relation to the company.

That statement came after Mama, which represents artists including Franz Ferdinand and Kaiser Chiefs, rejected an improved bid from Silvio Scaglia, an Italian entrepreneur, on Wednesday. Mr Scaglia, whose SMS Finance is Mama's biggest individual shareholder, with a 29.8 per cent stake, offered £38.4m for the shares he did not own after being told to increase an earlier bid. HMV refused to comment beyond yesterday's statement, but City analysts suggested there was a rationale for bidding for the rest of Mama.

"The venue business is an important area of development for HMV," said Matthew McEachran, of Singer Capital. "The group has done a lot to repair its balance sheet but it still needs to diversify away from its core business. A deal with Mama would certainly be synergenic, but there may be less incentive to do that because the joint venture offers incentives for Mama's management."

In January, HMV paid £18.25m for a 50 per cent share in the newly established Mama venture Mean Fiddler, which owns 11 venues including the Hammersmith Apollo – now renamed HMV Apollo – and the retailer profits from ticket and merchandise sales.

Mr Scaglia, a former chief executive of the Italian broadband operator Fastweb, raised SMS's offer for Mama to 4.75p per share on Wednesday, only two days after it had bid 3.7p.

Yesterday, HMV paid 5.25p each for 66.5 million shares.

SMS said its offer, which would have required a 50 per cent acceptance rate from Mama's investors, represented a "compelling opportunity for... shareholders to realise value for their shares in cash at a time of continuing economic uncertainty, market volatility and low market liquidity for Mama shares".

A takeover by SMS would also give Mama a foothold in North American and Asian markets. It is understood, however, that several Mama shareholders are keen to entice HMV into counter-bidding for the company.

By the end of this month, Mama is due to repay £2.5m in two convertible loan notes it borrowed from Pacific Capital, a subsidiary of SMS. Mama has said it will be able to find the money from its reserves.

There is unlikely to be an update as part of today's interim results statement from HMV. Analysts at UBS forecast that its pre-tax losses will be £25.5m, against £27.5m this time last year. Like many of its rvials, HMV has struggled as shoppers increasingly buy music, video games and books online. But it has benefited from the demise of high-street competitors such as Woolworths, Zavvi and, more recently, Borders.