Permira to slash WH Smith bid

VENTURE capital group Permira will this week signal a big cut in the value of a planned bid for WH Smith. When Permira unveiled its bid proposals two months ago, it said it would be prepared to offer £940m for the struggling retail group - equivalent to 375p a share.

But as Financial Mail on Sunday revealed last week, a fierce dispute has erupted between Permira and trustees of WH Smith's pension scheme over a £215m shortfall in the fund.

WH Smith had planned to make up the difference gradually over a decade. But the trustees are insisting that if the company is taken over using borrowed money, they will demand that the gap is plugged straight away and in full.

Now Permira is expected to tell advisers to WH Smith that it is planning to cut its bid price to about 340p, valuing the group at nearly £850m - £90m less than originally proposed.

Permira hopes that the cut will take account of the cost of meeting the pension trustees' demands while allowing the takeover to go ahead.

Permira is likely to argue that the trustees' hard line in protecting the interests of pensioners could interfere with plans by WH Smith's new chief executive, Kate Swann, to sell book publishing arm Hodder Headline.

It had been expected that money from that sale would be returned to shareholders, probably by the company buying back its own shares.

Comments by Martin Taylor, the trustees' chairman, last week suggested that he would question any move that made WH Smith's balance sheet any less robust than it is at the moment, or demand that the timetable for filling the gap in the pension fund is made shorter.

So far, WH Smith has made no public statement about the wrangle. But if Permira formally tells the company that any bid is likely to be cut, then WH Smith will be forced to make an announcement to the Stock Exchange.

Though the declared shortfall in WH Smith's pension fund is more than £200m, the amount that must be found is rather less - £151m after clawing back tax.

Permira is expected to argue that the price of WH Smith's shares could plummet if the bid collapses completely.

The bidding consortium is chaired by Keith Hamill, who used to be finance director of WH Smith.