WH Smith and Permira end bid talks over pension funding

The prospect of a £940m takeover bid for WH Smith vanished yesterday after the retailer called off talks with Permira, the private equity company that tabled a 375p-per-share approach two months ago.

The prospect of a £940m takeover bid for WH Smith vanished yesterday after the retailer called off talks with Permira, the private equity company that tabled a 375p-per-share approach two months ago.

The deal collapsed after a row broke out between Permira and the trustees of Smiths pension scheme over a £215m shortfall in the fund. Last night Smiths revealed that Permira had informed the retailer that it was "highly unlikely" to make an offer at 371p a share (net of the 4p dividend).

The venture capitalists, who narrowly missed out on acquiring Debenhams last year, slashed their original offer after trustees of Smiths pension plan asked for a big cash sum to cover the deficit as part of a deal.

"In light of these developments, the company has suspended discussions with Permira pending clarification of the level of any possible offer," Smiths said.

Although rival private equity houses are understood to have also approached Smiths, the retailer last night signalled its desire to remain independent by unveiling plans to sell or spin-off its publishing arm, Hodder Headline. If the division, which analysts estimate is worth up to £230m, is sold, Smith's pledged to return the spoils to shareholders.

Kate Swann, who joined as chief executive six months ago, said: "With the exit from the USA, the sale of our Aspac [Asia-Pacific] businesses and the demerger or sale of Hodder Headline, the group structure is being radically sharpened. These strategic actions enable a greater focus on our core retail and news business."

Permira insisted last night that it did not plan to abandon its attempts to acquire the 212-year-old chain. In a brief statement, it said it was "continuing a dialogue with the trustees of the pension fund to clarify their position with requirement to the pension fund deficit". It added: "We intend to revert to the company in due course."

Shares in Smiths have collapsed in recent days over fears that Permira was planning to cut its offer price. Although Smiths announcement came one hour after the stock market closed, shares in the group slipped 2p during trading hours yesterday to 321p.

Smiths said that if it opts to sell Hodder it has agreed to make a "cash contribution" to the company's pension trust. "The company is in discussions with a number of parties who have expressed an interest in purchasing Hodder Headline," it said.