WH Smith to top up pension pot

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WH Smith will top up its pension fund with £50m when it separates its news distribution and retail arms this August.

Killing speculation that it would mount a fresh attempt to sell its newspaper and magazine distribution business, the group announced it would give existing shareholders one share in each new company when it does the splits this summer.

Kate Swann, who will run the core retail business once it is spun off, insisted the restructuring was not an attempt at "financial engineering", adding the decision was "commercially driven".

The group thinks its news distribution arm, which is to be christened Smiths News, will fare better free from the risk of being compromised as part of the retail group. It also sees potential to expand its travel retail unit once it can devote more attention to its core retail business.

It is funding the £50m pension top-up from £70m of borrowings that will sit on the new Smiths News balance sheet. After the cash injection, the news distribution business will have a £14m pension deficit under the IAS accounting standard, and the retail arm will be £24m in the red. The overall pension deficit has narrowed from more than £150m two years ago.

The demerger, which will cost £12m to effect, does not alter the terms of an incentive scheme for WH Smith's bosses. Ms Swann, who stands to make up to £4m, said the "targets have not become any softer". Her payout will rest on new earnings-per-share targets for the retail business and on how well both companies' total shareholder return does over the period to November 2007.