MarketLine Blog

Asda rates HMV for brand

With Deloitte administrating the sale of HMV’s stores and assets, Asda has expressed interest in the company’s brand, an intangible which had gone largely unrecognised by previous suitors. Assuming Asda, a wholly-owned subsidiary of Walmart, have done their maths or cost-benefit analyses correctly, the prospect of HMV stores run by, or even situated inside large Asda stores raises questions about the conventional institutional-investor’s approach to “dying” brands and firms.

For example, the specialist investor Hilco, reputed for its experience in large divestment operations, has built its own brand on liquidating large high street brands such as Woolworths, Habitat, and Borders. This is not a singular phenomenon, asset-stripping is highlighted as defining of the type of capitalism ushered in by nigh global market-liberalisation in the ’80s, see Gordon Gecko in the film Wall Street. Whether or not you call it investment for divestment, short-term investment, or “asset-stripping”, the language used will not change the fact that large employers, the example being HMV, will be forced to turn to their creditors – cap-in-hand – should a buyer not be found. This is something not advisable when thousands of often angry stakeholders, i.e. employees, have their houses and mortgages on the line. Furthermore, if the choice is between paying creditors or finding a buyer, then the latter will always be in the board’s interest, regardless of who that buyer is.

We take the macro-environment as a given, and market trends brought about by technological change are beyond the scope of large retail firms to control or tame. The superior business models of Amazon.com Inc, Play.com, and other online-only retailers, where overhead costs have ceased to be function of often inflated high-street rents, are determining, largely, the fates of what seem to be, increasingly, businesses run for nostalgia not profit.

However, as always, a balance sheet when looked at on the assumption that liquidation is the only option, will also preclude the possibility of utilising what remains of the company’s branding, goodwill, or intangibles, things often unaccounted for when numbers are discussed by administrators. Asda’s proposition is an alternative one, and therefore takes full advantage of the (low) price of these assets, the ease of acquiring these assets, and an administrator’s policy inclination to find the best possible deal for shareholders.

Find this interesting! You will definitely like our case study Play.com Case Study: The Rapid Rise of the Internet Retailer as well.

 

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