How I would breathe life into WH Smith
Tim Waterstone yesterday promised a root and branch shake up of the "deadening culture" at WH Smith if his takeover proposals for the record shops to stationery group are reconsidered. Speaking for the first time since his audacious highly leveraged takeover plan was rejected out of hand by the company, he outlined his vision for transforming WH Smith's underperforming high street shops.
Countering the company's claim that his bid proposals would simply saddle the group with unwanted debt, he promised to sell the Our Price record shops to WH Smith's partner, Virgin, and to dispose of its American operations. That would reduce the pounds 1bn of debt that SBC Warburg, Waterstone's adviser, has proposed raising to fund the deal.
Making those disposals was not critical to the success of the takeover arithmetic, Mr Waterstone said. But he admitted that, for his proposals to make sense, he would have to generate like for like sales growth from the core retail chain of 4 to 5 per cent a year, compared to the current flat performance.
"It is a complete tragedy to watch this foremost retail brand go backwards at a rate of knots," Mr Waterstone said, as he promised to transform WH Smith's drab, underperforming high street shops by focusing on "books, news and beautiful stationery".
He said videos and music would be ditched as WH Smith focused on its three main product lines. Ranges would widen, the quality of staff would be improved and buying would get better. "Smiths used to do it well. We would concentrate on its old values," he added. "You completely change the culture, you Waterstone it."
Transforming the chain would require beefing up the book section, enlarging the news offering to become the "authoritative newsagent again" and taking the stationery range upmarket. Smith, with more than 500 shops, has been losing market share to supermarkets, which sell many similar lines.
Mr Waterstone's proposals, which envisaged a 200p a share cash payment to WH Smith shareholders, together with a share in a heavily borrowed acquisition vehicle, were still being treated with scepticism in the City yesterday. Analysts and WH Smith's large shareholders said they were waiting for concrete proposals to be tabled.
Despite Mr Waterstone's claim yesterday that WH Smith chairman Jeremy Hardie had been interested in his proposals as late as Tuesday afternoon, it was not felt that the company had acted hastily in dismissing the plan without putting it to shareholders.
One leading shareholder, who wanted to remain anonymous, said: "There is often a lot of sound and not much light in these situations. If there is something credible we would like to explore it, but we have a slight feeling that this is the 1980s all over again."
He added that, while new chief executive Richard Handover had a lot to prove, he should retain shareholders' support.
John Richards, an analyst at NatWest Markets, was equally sceptical: "We don't regard it as a serious offer and taking on that level of debt is potentially problematical for a company with strategic issues to resolve."
He questioned whether Mr Waterstone had the experience or ability to run a public company of WH Smith's size.
The Waterstone team also hit back at the assumptions made by WH Smith in its rejection on Wednesday. It denied putting a valuation of pounds 35m on Mr Waterstone's latest retail venture, the Daisy and Tom children's store on London's King's Road.
That figure, it said, was inferred by WH Smith from its proposal and, if true, implied a valuation of pounds 1.6bn for the group, a substantial premium to its current market value. It also questioned WH Smith's calculation of advisers' fees of pounds 34m.
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