Tom Stevenson, Financial Editor, reports.
Richard Handover's first day as chief executive of WH Smith yesterday saw him rejecting a hostile takeover bid from bookseller Tim Waterstone that would have seen the new boss out of the job almost before his feet were under the table.
Smith said the chairman, Jeremy Hardie, had received a bid approach from Mr Waterstone last weekend but had no hesitation in rejecting the offer, which would have given shareholders 200p in cash together with shares in WH Smith NewCo, a heavily indebted acquisition vehicle set up for the bid. The rejection was announced after dealings in WH Smith shares closed at 365.5p, down 2.5p.
SBC Warburg Dillon Read acted for Mr Waterstone in raising pounds 1bn of funding to cover the cash element and capital investment in a bid which WH Smith said bore all the hallmarks of the over-ambitious debt-funded takeovers of the 1980s. The deal would have also involved the issue of warrants to the takeover's promoters which would be convertible into up to 5 per cent of Smith's share capital.
The proposed takeover would have seen Mr Waterstone, who left WH Smith in the early 1980s to set up the bookstore chain bearing his name, return to the company for a third spell, this time as chief executive. He returned when WH Smith acquired Waterstones in 1989, leaving in 1993 to pursue other retail projects. The latest of those, a children's emporium called Daisy & Tom, was to have been taken over by Smith as part of his proposals.
Mr Handover said yesterday the WH Smith board had considered the proposals but "firmly believes they are not in the best interests of shareholders". He said he had spoken to WH Smith's leading shareholders this week who had backed his decision to reject the approach.
He added: "The board has had no hesitation in dismissing these proposals which offer no real value to our own shareholders and no premium whilst burdening them with high-risk equity, unnecessary costs and an over-priced acquisition."
He said that under the proposals, no premium would have been paid to WH Smith's shareholders, who would be given an equity stake in a "highly leveraged" business and be forced to make "an overpriced acquisition of an unproven retail concept for children at an incomprehensible price".
The takeover approach represented Mr Handover's first major challenge in the top job, for which many observers said he was an unspectacular choice. The former head of the wholesale news arm was appointed after a three-month trawl to find a replacement for Bill Cockburn, who left after only 18 months in the job to join BT.
Mr Handover said advisers' fees would have cost shareholders pounds 34m and countered the approach by promising to "improve the profitability of the high street business by focusing on the core product groupings of books, stationery, newspapers and magazines".