WH Smith shares slide after takeover collapse

Shares in WH Smith slumped 4% today following the suspension of talks about a takeover by private equity group Permira.

The stock was the top loser in the FTSE 250 Index, falling 13p to 308p, after WH Smith said last night that negotiations about a possible 371p-a-share bid had collapsed.

The discussions were suspended after Permira learned that it would need to make a “substantial contribution” to bridge a gap in the book and stationery retailer’s pension fund.

WH Smith said it was “highly unlikely” that Permira would make an offer for the company at 371p per share.

The retailer also said last night that it planned to sell or demerge book publishing business Hodder Headline before the end of 2004, with cash being returned to shareholders on a sale.

Broker Killik and Co said an earlier rally by the stock was linked to anticipation that Permira could return with a lower bid.

Broker Seymour Pierce said the announcement was “obviously not good news overall”, adding that a price of about 300p was probably justified.

It said board changes were probable, with chairman Richard Handover and financial director John Warren likely to depart “in pretty quick time”.

“There is an outside chance that Permira or one of the other prospective bidders may come back, but maybe we are just clutching at straws,” it added.

Permira – which emerged as a bidder earlier this year – has been in talks with pensio fund trustees over a shortfall that was £190 million in February this year.

The Permira bid is being spearheaded by former Hamleys boss Simon Burke and Moss Bros chairman Keith Hammill – a former finance director of WH Smith.

WH Smith also said it was in talks with a number of parties who had expressed an interest in buying Hodder Headline, whose authors include Pete McCarthy and Stephen King.

Smiths announced in April that its high street shops had delivered an “unacceptable” performance as half-yearly profits plunged 29%.

Fierce competition from supermarkets and internet retailers for its core sales of books, records and DVDs hit sales hard as the retailer struggled to hold its once-dominant market position.