WH Smith sells Hodder Headline to French rival

Kate Swann, the chief executive of WH Smith, pressed ahead yesterday with the first step of her plan to return the troubled newsagent chain to its former glory with the £223m sale of its publishing business.

Hachette Livre, the publishing arm of the French media conglomerate Lagardere, is acquiring Hodder Headline for £210m in cash. Hachette, whose UK interests comprise the Octopus, Orion and Watts publishing houses, will also take on Hodder's £13m pension deficit.

Analysts hailed the deal as a signal that the tide of apathy that has held back WH Smith's performance for years had begun to turn. Rhys Williams, of Seymour Pierce, said: "The timing of the announcement is quicker than we were anticipating and so must be seen as positive."

WH Smith put Hodder up for sale in June, just weeks before the private equity group Permira dropped its putative bid for the newsagent-to-news distribution group. It is understood to have opted to sell Hodder, whose chief executive is Tim Hely Hutchinson, the UK publisher of Stephen King and James Patterson, to Hachette to try to avoid regulatory obstacles given the French group's small share of the UK publishing market.

The group also confirmed plans to hand back the bulk of the cash to shareholders. It pledged to return up to £207m, worth about 85p a share. It intends to consult institutional investors before deciding whether to opt for a tender offer or a special dividend, instead of an ongoing buy-back programme.

WH Smith bought Hodder, the UK's top further education publisher, in May 1999 for £185m. In 2002 it strengthened the business, buying the publishers John Murray and Robert Gibson. The business made an operating profit of £19m on sales of £144m in the year to the end of August. Its net assets, adjusted for the net pension deficit, were £256m.

Ms Swann said: "The sale of Hodder Headline is an important milestone in our strategy to simplify the structure of the group."

The disposal is subject to approval from the competition authorities. Shares in WH Smith rose 5p to 295p.