Investors press WH Smith to meet Waterstone

Institutional pressure yesterday continued to drive WH Smith to a meeting with its would-be chief executive, Tim Waterstone. Tom Stevenson, Financial Editor, reports on the high-stakes poker game between the retailer and its ambitious nemesis.

A meeting between Tim Waterstone and WH Smith's board moved closer yesterday after some of the retailer's biggest shareholders told the company they disagreed with its blanket rejection of last week's takeover proposals.

It also emerged that the Waterstone camp, together with its advisers at SBC Warburg Dillon Read, were preparing a compromise proposal that would attempt to soothe investors' concerns about the level of borrowings proposed for Mr Waterstone's takeover vehicle.

The takeover team is also understood to be preparing a more flexible position on what has emerged as a further sticking point with a number of shareholders, the valuation attributed to Mr Waterstone's private retail concept, Daisy & Tom, which would be taken over by WH Smith as part of the deal.

Up to one-half of WH Smith's top investors are thought to favour a rapprochement between the two sides and have approached the company or its broker, Cazenove, to insist a meeting should take place. Jeremy Hardie, the chairman of Smiths, who has remained silent on the proposals since they were rejected, is thought likely to be a prominent figure in the renewed discussions.

WH Smith restated its rejection of Mr Waterstone's proposals yesterday and said it had no intention of meeting with its former employee. Despite the rising groundswell of opinion against its stance, the company has refused to deviate from its line that Mr Waterstone's proposals offer nothing worth discussing.

Mr Waterstone approached Mr Hardie 10 days ago with proposals that would see him replace Richard Handover as chief executive of the stationery, music and books retailer. He believed he was involved in confidential talks until a pre-emptive rejection by the retailer last Thursday put the bid on to the back foot.

The SBC Warburg-devised plan would have seen around pounds 600m of debt taken on by the company to fund a 200p handout to shareholders, the sale of the Our Price record chain and WH Smith's US operations, and a radical overhaul of the core high street chain.

Institutions seen by the Waterstone team this week are understood to have been interested in the planned changes, but some have expressed concern about an injection of debt that would see gearing rise to about 80 per cent of shareholders' funds. They are also concerned that Daisy & Tom, which recently started trading from one shop on London's King's Road, is to be acquired in exchange for too big a shareholding in the new company.

Although Warburgs believes the injection of pounds 600m of borrowings would create the most efficient capital structure for the cash-generative retailer, it is thought to be drawing up a new proposal which would see less than 200p a share being handed back to shareholders. It is also looking at plans to make any acquisition of Daisy & Tom less reliant on an up-front payment and more on an earnout which would only cost WH Smith shareholders if the concept proved successful.

Not all WH Smith's shareholders were enthusiastic about change. One leading investor said he retained doubts about the bookseller's ability to run a business of WH Smith's size. He welcomed the approach, however, for the galvanising effect it was likely to have on the company's new management.

The retailer's shares closed 5.5p lower yesterday at 386p, but are trading around 20p higher than before Mr Waterstone's approach was publicised.

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Beverley James: Accounts Payable

£22,000 - £23,000: Beverley James: Are you looking for the opportunity to work...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower