Internet book deal boosts WH Smith

WH SMITH boosted its Internet credentials yesterday when it struck an agreed pounds 5.6m cash deal to buy media group Helicon Publishing.

Helicon produces educational reference material, including the Hutchinson encyclopedia, both in print form and online. WH Smith plans to use the content in the relaunch of its Internet site in the spring, which is expected to include a wide range of electronic commerce activities such as the sale of books, CDs and videos.

The company has been working on the site since last summer when it acquired the Internet Bookshop, an online book retailer. The new site is expected to extend well beyond Smith's traditional product categories.

After the success of Dixons' Freeserve Internet access service, which has helped Dixons shares to double since its September launch, the prospect of Smith's following a similar route has excited the City. Smith's shares surged 32p to a new high of 623p after big rises earlier this week.

Analysts said the Helicon deal was logical, acknowledging that books could successfully be sold over the Internet, while the physical product could also be downloaded direct to subscribers' PCs.

"It is a little crazy at the moment," said Iain McDonald, retail analyst at Charterhouse Tilney. "If you just mention the Internet your share price goes though the roof."

He said it would be easy for Smith's to distribute CD-Roms through its retail network, and the retailer also has a good knowledge of its customer base though its Clubcard loyalty scheme.

Richard Handover, Smith's chief executive, said: "Our strategy is to develop our brand, including strengthening our retail businesses and building an online capability."

WH Smith used to have an Internet capability through Waterstones before it sold the book retailer to the HMV Media buyout. Wary of the huge success of US online booksellers such as, WH Smith filled the gap swiftly by buying the Internet Bookshop in July. Smith's has been using the Internet expertise of that company in the relaunch of its website.

WH Smith is paying 94p per share cash for Helicon, with a share alternative of three WH Smith shares for every 18.86 Helicon share.

Helicon was formed in 1992 as a management buyout from Random House, the publishers. Last year it recorded a loss of pounds 86,000 on sales of pounds 2.7m. In the six months to September losses increased to pounds 166,000 on sales of pounds 1.6m. Its third-quarter performance was below expectations.