WH Smith has completed the sale of its High Street business after being forced to renegotiate the price downwards due to a deterioration in trading in recent weeks.
The group will now receive gross cash proceeds of up to £40m from the sale to investment firm Modella Capital, with £10m expected in FY25, up to £20m in FY26, and £10m of deferred tax assets delivered as it becomes payable. This compares with the £52m it had projected when it first announced the deal at the end of March.
In a statement issued this morning, WH Smith said that following the original announcement of the sale, the “future of the High Street business under a change of ownership has led to a more cautious outlook amongst stakeholders. This, combined with a period of softer trading, has resulted in a reduction in the ongoing cash flow of the business. Consequently, Modella has recently sought amendments to the construct of the transaction.”
Modella, which also owns HobbyCraft and The Original Factory Shop, said in March that it “believes strongly in the future of the high street” following previous speculation by some analysts that a new owner could consider store closures in a bid to slash costs.
The deal will see the 480 WH Smith sites on high streets rebranded as TGJones. The group’s 1,300 stores in airports, train stations and hospitals will continue to trade under the WH Smith name, which has a 233-year history.
WH Smith said today: “As the group enters the peak summer trading period, the Travel divisions continue to trade in line with market expectations.”
Analysts at Goldman Sachs noted that “while the revised terms are slightly disappointing and will [probably] be the focus of the market”, the sale of the high street arm was a welcome “step to transforming WH Smith into a pure-play travel retailer”.
NAM Implications:
- A 23% reduction in price is unlikely to be a problem for WH Smith…
- …given the advantages of being able to focus on profitable pure-play travel retailing…
- …without the profit-diluting effect of its High Street operation.
- Meanwhile, market attention will inevitably focus on the new owner’s challenge in reviving a struggling High Street division under a new label.
