'We'll break up WH Smith group'

PERMIRA, the venture capital firm lining up a £950 million offer for WH Smith, will try to sell the company's huge newspaper and magazine distribution arm if its takeover succeeds.

'The news business would go,' said a leading figure at Permira. It is reckoned that the wholesale operation, with annual cashflow of about £40 million, could fetch more than £200 million.

But industry insiders said this weekend that many of WH Smith's distribution contracts with publishers included a 'change of control' clause. So any sale of the wholesale operation could trigger attempts by publishers to renegotiate their deals.

Examining the fine print of the distribution agreements is one of the priorities for the bidding team. WH Smith chief executive Kate Swann said on Thursday that Permira would be allowed to carry out 'due diligence' investigation of the company's affairs.

WH Smith's distribution arm handles about 36% of the magazines distributed in Britain and about 33% of all newspapers.

The Permira bid is being spearheaded by former Hamleys boss Simon Burke and Moss Bros chairman Keith Hamill. If successful with their offer - provisionally pitched at 375p a share - they hope to recoup some of the money by selling WH Smith's publishing arm, Hodder Headline, to Lagardere of France as well as shedding the wholesale operation.

Selling Hodder and wholesaling would leave WH Smith with its travel shops business, which serves railway stations and airports, and its struggling High Street chain of 600 outlets.