Waterstone to put fresh plans to WH Smith early next week

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The Independent Online
Tim Waterstone and his advisers at SBC Warburg were last night putting the finishing touches to revised proposals to restructure WH Smith. They plan to present their new case early next week. Tom Stevenson, Financial Editor, reports.

Tim Waterstone will present new proposals to WH Smith early next week in a bid to answer investors' concerns about his original restructuring plan which was rejected last week by the retailer's board. The biggest change is likely to be a sharp reduction in the level of debt that would be taken on to fund a special payment to shareholders.

Under Mr Waterstone's initial proposals to WH Smith's chairman, Jeremy Hardie, shareholders would have received a 200p-a-share handout together with a share in a newly formed acquisition vehicle carrying pounds 570m of new debt and gearing of around 80 per cent.

Responding to the concerns of leading shareholders that that level of financial leverage was too high for a company already characterised by significant operational gearing, Mr Waterstone and his advisers at SBC Warburg are expected to reduce the payout to between 125p and 150p a share. That would add borrowings of between pounds 350m and pounds 424m to the new company's balance sheet.

Mr Waterstone and Ian Martin, the chairman of Unigate who would become non-executive chairman of Smiths under the proposals, have spent most of this week briefing shareholders on their plans. They are thought to have seen investors speaking for more than 50 per cent of the shares.

It is also likely that Mr Waterstone's private retail venture, Daisy & Tom, will be acquired by the restructured Smiths at little more than the investment already put in of around pounds 10m. Any further payment would be contingent on future earnings, meaning shareholders only paid out if the concept proved successful.

Despite maintaining its opposition to Mr Waterstone's proposals, it emerged yesterday that WH Smith had agreed to requests from several institutions for meetings which will be held today and on Monday. They are expected to question the company on the extent to which its board was unanimous in rejecting Mr Waterstone's approach.

It is understood that at least one board member was out of the country when the proposals were discussed and questions have been raised about why Mr Hardie, with whom the proposals were initially discussed, has so far held back from putting his name to the rejection.

A spokesman for the Takeover Panel said yesterday there was no immediate intention to call for a clarification of Mr Waterstone's proposals.