Smiths confirms Menzies stores talks

WH Smith confirmed yesterday that it is in talks with John Menzies to buy the group's high street newsagent stores in a deal which analysts said could be worth pounds 80m. Smiths is understood to be in exclusive negotiations with Menzies to buy its 232 outlets which were put up for sale in January.

Smiths' intervention seems certain to end the interest of Alchemy, the venture capital group, that had previously been the front runner with a pounds 55m offer.

Smith's shares fell 6.5p to 492.5p, as some analysts said the group should focus on the problems in its own core chain rather than expanding it. There were also concerns that the bid might reduce the possible pounds 250m that the group had been expected to return to shareholders.

Nick Bubb at SG Securities said: "It would be disappointing if Smith's weren't interested. It is not going to break the bank and should not prove too much of a distraction."

Menzies' main attraction for Smiths is its 92 stores in Scotland where Smiths has no representation. Another draw is its 50 outlets in railway stations and airports. If Smiths does acquire Menzies it is likely to re-brand the stores under the WH Smith name in England and Wales but keep them as Menzies in Scotland. There may be some store closures and there could be cuts at the Edinburgh head office where almost 200 people are employed.

The deal is likely to be scrutinised by the competition authorities which are likely to focus on the combined group's market shares in the newspaper and magazine markets and in railway and airport locations.