The Investment Column: WH Smith board under pressure
Friday 17 October 1997
There is no doubt that Mr Waterstone's plans, which included a high level of debt and the sale of the Virgin-Our Price and US businesses, had fundamental weaknesses. But the Smith plan has risks too. On the plus side it will mean a relatively unleveraged vehicle and the possibility of the proceeds of disposals such as Virgin Our Price and The Wall music operation in America being returned to shareholders.
But the real risk is in the demerger of Waterstone's. For a start there is the risk of margin erosion as the buying power will be reduced and costs may be higher. Second, an independent Waterstone's would surely be a sitting duck for takeover. And if it fell to a mass-market player like Barnes & Noble of the US, it could be "dumbed down" and taken into head-on competition with Smith. However, with Waterstone's potentially valued at pounds 300m or 100p per share, buying it would be a big leap for Barnes & Noble which would presumable have to pay a premium as well.
As ever, much depends on whether Smith can revitalise its core chain. Here is does seem as if Smith's management has stolen some of Waterstone's ideas. The decision to focus more on books, stationery and magazines does make sense, as does keeping the music and video operation which still has a sizeable market share
Whoever had the ideas first matters little to shareholders who stand to benefit anyway. Having been given an almighty prod by Mr Waterstone and its own shareholders, Richard Handover and co will be under pressure to deliver shareholder value.
If they fail, it will not be long before someone else has another tilt at it - possibly hostile next time. With analysts forecasting full-year profits of pounds 140m, Smith shares trade on a forward multiple of just 12. That seems cheap. After putting up with all the shenanigans of the last few years, Smith's shareholders should not sell now.
Olympic diver has made his modelling debut for Adidas
- 2 Isis release 'Flames of War' video warning Obama of attacks troops could face in Iraq
- 3 Pakistani passenger power forces two politicians off plane
- 4 Say yes to 'no-poo': It's been three years since I stopped washing my hair
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
Scottish independence referendum: A nation divided against itself
The political class is doing what Hitler couldn’t – destroying Britain
Scottish independence: Nationalist leader Jim Sillars threatens pro-union companies with 'day of reckoning' after independence
Portuguese academic says British are 'filthy, violent and drunk'
Russia freezes Ukraine into submission: Kiev admits country doesn't have enough fuel for winter
iJobs Money & Business
£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...
£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...
£20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...
£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...