Fund row hits WH Smith bid

A £940m takeover bid for WH Smith is on the brink of collapse this weekend because of a fierce row over a huge pension hole at the struggling High Street retailer.

Venture capital group Permira has been told that it must plug the gap immediately if it wants to take control of WH Smith, which includes newspaper and magazine wholesaling and book publisher Hodder Headline as well as the familiar High Street outlets.

WH Smith agreed to allow the bidders to go through the company's books to check its financial position. But a row has erupted between Permira and former WH Smith chairman Martin Taylor, who oversees the trustees of the company's pension fund.

Under new accounting rules, there is a £215m gap in the WH Smith pension fund, or £151m after clawing back tax. It was planning to fill the hole over several years by bumping up payments into the scheme, which has assets of £631m.

But according to insiders, Taylor is insisting that if Permira wins control, the full amount must be put in immediately. 'This could be a showstopper,' said a source close to the negotiations. It may take two weeks to establish whether any compromise can be reached between Permira and the trustees.

Those overseeing pension funds have a duty to ensure that nothing happens that threatens the security of the fund. If a company is taken over by a group carrying high debts, the trustees are within their rights to insist that any shortfall in the fund is made up straight away. Permira would most likely have to take on debt to buy WH Smith.

The shares leapt when news of Permira's interest broke. Last Thursday, the price wobbled as rumours began to circulate that the Permira offer was foundering.

On Friday, the price recovered to 349 1/2p - still well short of the 375p that Permira has indicated it will offer.

Permira would not comment and Taylor was not available.