Media group Chrysalis is set to cut its losses on its books division to focus on music and radio stations such as Heart and Galaxy.
Chrysalis - which also runs two West Midlands radio stations - yesterday revealed it was in exclusive talks with managers of the books division over a buyout worth #12.5 million. Executives are keen to sell because the business has performed poorly over the past year and racked up costs when laying off 40 staff during the summer.
The decision was also taken as Chrysalis is involved in battles to resolve problems at its two main divisions, including a decline in radio revenues as advertisers spent less on promoting their products across the airwaves.
At the same time, there was a sharp drop in demand for albums on the Echo record label, which forced the company to cull the number of artists on its roster and will hit the results of Chrysalis Music for the full year.
In a statement, the company said: "The disposal will allow management to focus on Chrysalis's core radio and music businesses, where it enjoys strong market positions that offer good growth potential."
Chrysalis's books business, which made losses of #2.8 million in the 12 months to August last year on turnover of #27.4 million, has published novels by actress Joan Collins and former Conservative Party leader Iain Duncan Smith.
Chrysalis chief executive Richard Huntingford said: "Our proposed exit from the books business means we start the new financial year with a much improved base from which to build long-term value for our shareholders."
Details were announced alongside a trading update for the year to the end of August, which showed revenues at Chrysalis Radio sliding 8.6 per cent to #61.8 million on a like-for-like basis.
Chrysalis is the UK's fourth largest radio group, owning Heart and Galaxy branded stations, including Birmingham-based 100.7 Heart FM and Galaxy 102.2.
In common with other radio station owners, Chrysalis has felt the pain of a weak advertising market but it flagged up signs that this could be improving with bookings for September showing "a marginal year-on-year increase".
A spokesman said Chrysalis was not isssuing a revenue breakdown by radio station.
It also has a music division responsible for the release of albums by acts such as David Gray, Feeder, Athlete and Lucie Silvas.
Following the statement, broker Dresdner reiterated its 'hold' advice and said 2005 has been Chrysalis's "annus horribilis" with challenges across most businesses. Books had been at the heart of this, the broker said, and while it was revising down numbers again, an exit from this business was finally on the horizon.
Problems at Echo add further disappointment, but 2006 should prove a different story with Chrysalis totally focused on radio and music publishing, Dresdner argued.
Referring to Echo, which has run up an unexpected loss, the broker said this was a business scaled back a few years ago but it appeared that costs had again got out of control while too many bands signed had not sold.