The British publishing and financial communities were shocked last week when U.K. bookselling giant W.H. Smith announced it had agreed to buy the country's third-largest consumer publisher group, Hodder Headline, for £185 million ($296 million).
The cash offer is for the entire capital of Hodder Headline, which represents a premium of 43% over the closing share price before the deal. Analysts remain somewhat wary of the deal, especially in view of the premium paid.
Chief executive and founder Tim Hely Hutchinson will remain in his post (as will his fellow directors); he will also join the main WHS board. Hely Hutchinson will report to WHS chief executive Richard Handover, who took over the job 20 months ago after a troubled period for the WHS group.
Listing the reasons for the acquisitions, Handover referred to the "additional creative capability and product content for developing online products," and analysts have seized on this. This deal comes less than a year after WHS acquired the Internet Bookshop for £10 million and four months after it paid £6 million for reference and educational publisher Helicon, specialists in converting material for use online. Only last month the company launched WHSmith Online and on May 18 it announced that those three new media ventures, plus WHS interests in digital interactive television, were to form a new business division called WHSmith Direct.
Since Handover became CEO, WHS has adopted a strategy of focusing on its core businesses. This has included selling off the upscale bookselling chain Waterstones and acquiring the John Menzies chain of newsagents and book outlets. At the time Handover took over the company, WHS had posted the first-ever losses in its over 200-year history. Under his direction, by August 1998 WHS reported profits of £142 million on sales of £2.1 billion.
Hely Hutchinson said the WHS offer came completely out of the blue: "I hadn't been thinking of selling, as the business is doing very well and we could have gone on being independent." However, he told PW that he saw "important advantages...aims that seem to synchronize" for both the company and for its shareholders. Hely Hutchinson also noted that WHS is "really serious about Internet trading," and provides "an important capital base."
Hely Hutchinson is convinced that WHS will not interfere on the publishing side; "they'll no doubt offer advice from time to time and I'm sure I'll do the same about bookselling." Asked whether HH may have to scale back its literary publishing to fit WHS's middle-of-the-road reputation, Hely Hutchinson noted that HH's Sceptre and Headline Review imprints have done "very well." He continued, "the market is growing increasingly sophisticated, both in Britain and elsewhere, so the audience for the books published under these imprints will grow."
