WH Smith board puzzles over the need for inducement fees

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The board of WH Smith, the struggling retailer facing a £940m takeover bid, was last night still deliberating over whether to offer its potential queue of suitors any form of inducement fee.

The company, which received a 375p-a-share approach from Permira earlier this month, must solve the conundrum before it grants either the private equity house or anyone else access to its books.

It has agreed in principle that Permira should be allowed to conduct due diligence. However the retailer has not yet decided whether to agree to the venture capitalist's request that it pay a break fee of 1 per cent of the value of any bid in the event that Smith decides not to recommend the offer to its shareholders.

Richard Handover, Smith's chairman, knows that if Permira walks away, shares in the retailer will crash by more than £1, to the near five-year low they were trading at before the private equity group approached it. That will put all the risk on the turnaround plan proposed by Kate Swann, its new chief executive. Shares in the group were flat at 357.5p yesterday.

Mr Handover and his fellow executive directors have a choice: they can opt not to offer any inducement fees of any form to either Permira or anyone else. A string of private equity houses are known to be running a slide rule over Smith.

The board could also choose to follow the example set by Debenhams, the department store group that was acquired last year by CVC Capital and Texas Pacific, and offer to pay all the due diligence costs incurred by anyone keen to look at its books.

Debenhams - which, like Smith, was advised by the investment bank Greenhills - justified offering inducement fees by pointing to the 475p a share at which it was taken private, far more than most analysts believed it would achieve.

The two sides are also discussing how much detail Permira should be allowed to see.

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