WH Smith's books move fuels talk of Ottakar's bid

WH Smith fuelled speculation it was preparing to spark a bidding war for Ottakar's, the book chain being stalked by HMV, after revealing it planned to open up to 100 separate book stores.

The group also confirmed its intention to split its retail arm from its news distribution business by seeking separate stock market listings for both businesses.

The retailer, which is under growing pressure from investors to demonstrate it has a credible growth strategy, has been testing the water with stand-alone book and stationery stores in a number of locations, from airports and train stations to market towns.

It opened six WH Smith bookshops in the past six months and two separate stationery shops, all in locations where its existing store was too small to display its full ranges. It intends to open a further five in the second half.

Kate Swann, the chief executive, said the group has identified between 50 and 100 towns where it would like to open either a separate book or stationery store. "They are all towns where we do not have enough space in our existing location to do all that we would like to do," she said.

Analysts said her comments suggested WH Smith would fight HMV for ownership of Ottakar's. The Competition Commission recently cleared the way for HMV to bid for Ottakar's after concluding that a takeover would not dent competition despite complaints from publishers and authors that it would. Shares in Ottakar's rose 3 per cent to 345.25p on hopes of a bid battle.

Ms Swann said the company took the decision to spin off its retail business, which includes its stores at railway stations and airports, because it made no sense to run the division as part of the same group that supplies newspapers and magazines to rival retailers. It has yet to announce a timetable for the impending demerger or decide what each new business will be called.

Analysts had mixed views about the decision, with some pointing to the limited synergies between the two divisions and others arguing that it would not necessarily create more value for shareholders. They valued the business at anything between £200m and £400m. One watcher said: "It shows a startling lack of imagination. Why don't they sell it and reinvest the cash in doing something useful?"

WH Smith tried to sell its news distribution business in 2001, but the deal fell apart after the prospective owner, ABN Amro Private Equity, dropped its offer to £215m. It has ruled out a sale this time, Ms Swann said.

The demerger was announced alongside interim results that showed pre-tax profits rose £8m to £76m. Last year, underlying sales at its high street stores fell 6 per cent, while its travel retail arm increased sales by 3 per cent. Its news distribution arm saw a 2 per cent drop in like-for-like sales but profits were broadly flat at £18m.