Ottakar's says it has been "distracted" by takeover activity

The company reported a pre-tax loss of £4.6m ($8m) in 2005 after a profit of £6.9m in 2004.

Ottakar's was the subject of a takeover bid from Waterstone's owner HMV last year, which valued the firm at £96.4m.

However, the bid is currently under investigation by the Competition Commission, after complaints to the Office of Fair Trading about a merger.

'Difficult year'

Ottakar's said "unprecedented price competition" from rivals had come at the same time as "intense corporate activity", with a management buy-out plan trumped by the higher offer from HMV.

"The distraction of the corporate activity and the slowdown in second half sales have combined to make 2005 a difficult year for Ottakar's," said chairman Philip Dunne.

The firm said the reaction to the HMV bid, which included concern from independent book shops, had "visibly demonstrated the high esteem" in which the company was held.

Those against the move have argued that a merged HMV and Ottakar's would be too strong, something HMV denies.