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News - 30 April 2004
Valuable property?

Sharks circle High Street newsagent

WH Smith is hardly an exciting retailer but it is generating an extraordinary amount of interest from prospective purchasers but for all the wrong reasons that reflect the malaise of established names in the high street.

As speculators smelled blood, shares in WH Smith and a raft of other weakened fascias such as Woolworths, Marks & Spencer and Somerfield all went up in value and in one day over 16% of shares in the troubled newsagent changed hands.

Since a disastrous performance at Christmas (see earlier story in Knowledgebase) times have been very hard indeed for W.H. Smith with pre-tax figures to the end of February showing a loss of £72m. It is now being eyed up by private equity group Permira.

But Permira's interest in a business that, like most other retail sectors, is increasingly losing out to the supermarkets as they bulldoze their way into sales of non-food merchandise is interesting. The challenge of turning it around is probably not first and foremost in Permia's collective mind. Break up of the company's diverse assets is certainly on the cards but more likely is the extraction of cash from the chain's many High Street shops in prime locations. W.H. Smith has about £25m of freehold property (which could be sold and leased back) and £80m on leasehold.

Cleverer manipulation of the property portfolio is probably what makes the company so attractive, especially at a time when high street rents and property values are at an all-time high but it does little to assure interested parties that the long term survival of the company will be safer in Permira's hands.

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