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The buyer of WHSmith’s high street business has renegotiated the price downwards after trading at the chain deteriorated in recent weeks and scepticism builds over its prospects under new owners.
WHSmith now expects to receive gross cash proceeds of up to £40mn from the sale to Modella Capital, compared with the £52mn it had projected when it first announced the deal on March 28, the company said in a stock exchange statement on Monday.
The renegotiation with Modella, which is changing the name of the 233-year-old business to TG Jones, comes after “the future of the high street business under a change of ownership has led to a more cautious outlook amongst stakeholders”, WHSmith said in a statement.
The sale has now completed. The news of the revised deal terms sent the share price down as much as 7 per cent in morning trading in London before recovering some losses.
Modella, a UK consumer and retail investment company, 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 an efficiency drive.
TG Jones said on Monday the chain was “a profitable, cash generative business” but “in line with much of the retail sector, recent market conditions have been softer than anticipated”.
“The management team and our new owners are confident in the future of the business, and we plan to extend and improve the range of products and services we offer,” the company added.
However, some landlords and suppliers are more sceptical about the division’s prospects under its new owners, according to two sources close to the business.
In recent weeks Modella restructured HobbyCraft and TOFS, resulting in store closures and job losses, only a matter of months after it acquired each business.
One WHSmith high street landlord said that Modella was aiming to sign new, longer leases on some stores “but they haven’t shared any detailed plans” about their strategy for TG Jones.
“I’m conscious of their track record,” the landlord said. “If they turned up with detailed plans and said ‘we’ve got a £100mn credit line to invest in the estate’ I would take them seriously — but they haven’t.”
Modella said it was “day one of our ownership of the business” and it was “finalising a new strategy that will bring more products and services into stores”, which it will share with stakeholders, including landlords, “when we are ready”.
On Monday, WHSmith said the two sides had entered talks over amendments to the deal “given the original agreement was no longer deliverable”.
WHSmith still has about 1,300 stores globally, located in airports, train stations and hospitals. The group has offloaded all 480 outlets on high streets, in shopping centres and retail parks to focus on its more profitable travel retail business.
Analysts at Goldman Sachs said on Monday 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 WHSmith into a pure-play travel retailer”.
