WH Smith's plans for a break-up come just two months after Jeremy Hardie, the WH Smith chairman, ruled out such a course of action. At the time of the company's full year results in August he said: "We have no plans for a break-up ... What you don't do is thrash about changing things."
However, he denied yesterday that there had been any volte face, saying that plans to reshape the Smiths portfolio had been under consideration for several months. "This is not the kind of thing you do on the hoof. It has been going on for a considerable period of time." He admitted that Mr Waterstone's intervention had acted as "a spur and a catalyst" that had pushed the board to act.
Mr Hardie said the Smith board had been unanimous in its rejection of Mr Waterstone's proposals, saying they were not in the best interest of shareholders. Mr Waterstone said he was "genuinely saddened" by his second rejection in a fortnight and that he had no plans to put his proposal to shareholders. However, he added that if shareholders thought after time that they supported his "vision" for WH Smith he would be willing to discuss his proposal again with the board.
WH Smith share's rose 3.5p to 405.5p on the news, though the proposal met with a mixed reception from analysts. Nick Bubb of Societe Generale Strauss Turnbull said: "It looks likes Tim Waterstone is dead in the water. It was always obvious that Smith's would steal his best ideas and put them into practice themselves." However, another analyst described Smith's plans as "woolly" and "unfocused."
The key parts of the strategy are to de-merge the Waterstone's business into a separate quoted company. This should be completed by next Spring with analysts putting a value of around pounds 300m on the business.
The music operation including the Virgin-Our Price business and the Wall division in the US will be sold. Analysts said Virgin-Our Price could be worth around pounds 150m with Virgin having options to buy it.
Smiths will then concentrate on three business, its core WH Smith chain which accounts for 30 per cent of sales and operating profits and which it hopes to revitalise; the cash-generative news distribution business, and the international and UK travel interests.