W H Smith 'had planned' B&N buy-out

W H Smith reportedly offered to buy struggling US bookselling chain Barnes & Noble (B&N) last year before the deal fell apart.

According to the Wall Street Journal, the UK books and stationary company was B&N's would-be-buyer described in its ex-head Demos Parneros’s lawsuit against his former employers. The filings had said that an unnamed company was keen to take on B&N last spring but withdrew the offer on 19th June this year after conducing due diligence. “People familiar with the situation say it was W H Smith PLC, a UK retailer that sells books, stationery and other products,” the WSJ said. W H Smith's recent full-year results included a reference to £2m of “costs related to an uncompleted transaction”, as highlighted by the Financial Times.

A W H Smith spokesperson told The Bookseller it did not comment on this kind of rumour or speculation.

Douglas McCabe, of Enders Analysis, said he was surprised at the reported interest of W H Smith in B&N. He told The Bookseller: "Where would they get the money? In every conceivable way the WH Smith retail concept is very different from Barnes & Noble, which raises the question: were they serious, or just checking them out, seeing what they could learn? 

"They might have been serious. After years of squeezing margins out a fading retail concept, W H Smith might reasonably consider they have an 'end of the road' problem. If so, they would need to plan a long-term reinvention. Airport bookshops and transport retail is a big part of that, but what about the future on high streets, downtown and shopping centres? All things considered it is pretty clear Barnes & Noble does not provide all the answers... Which also raises the question: why didn’t they [W H Smith] buy Waterstones?" 

The reported interest of the British retailer in B&N coincides with W H Smith's expansion into America. At the end of last month, the firm agreed to buy travel retailer InMotion, a retailer of digital accessories in US airports, for $198m (£155m). W H Smith said the purchase would give it a scaleable platform to launch the retailer's airport format in to the US, "the world's largest travel retail market for news, books and convenience products.” The purchase also doubled the size of W H Smith's international travel business, the company said.

In its latest results, W H Smith revealed group sales were flat for the year ended August 2018 at £1,262m (2017: £1,234m) while group pre-tax profit was down 4% at £134m (2017: £140m). In terms of the retailer's books business, like-for-like revenue was down 6%. Following a review of its high street businesses, six loss-making high street stores will be closed, it announced then. It will also be "winding down" non-core initiatives including its WH Smith Local convenience outlets, launched in 2013, and its 20-strong Cardmarket chain, once the leases expire, it said.

The planned take-over of B&N by another book retailer was first revealed earlier this summer, when Parneros filed a lawsuit on 28th August charging his former employer with breach of contract and defamation of character after he was fired from the c.e.o. role in July, following a fast turnover at the top of the organisation. Last month, B&N claimed Parneros had intentionally “sabotage[d]” the deal, saying he had described the US company as an “ugly mess”.

The fuller response from B&N, filed on Tuesday (30th October), denies Parneros’ allegations of breach of contract and defamation, and countersues “to recover…the substantial damages flowing from Parneros’s breach of his fiduciary duties” through his alleged thwarting of the company’s sale, according to Publishers Marketplace. 

In the filing the B&N reportedly admits there was a sale in progress, as Parneros asserted in his suit, but also says his statements about that deal comprise “a breach of [his] confidentiality obligations.” According to B&N’s account, the potential acquirer made an “indicative proposal” in the spring, and an “increased revised indicative proposal” afterwards.

“Parneros made shocking and derogatory comments about the company [at a meeting with with potential buyer on 18th June] that were designed to and had the effect of blowing up the potential transaction” at that meeting, B&N said. The chain, which boasts 633 stores in America, reportedly claimed that Parneros called the company an “ugly mess” at the meeting amongst other allegations and that the buyer subsequently withdrew from the negotiations and sale. In his suit, Parneros denied responsibility for the offer withdrawal.

However, last month, B&N said it has received “expressions of interest from multiple parties in making an offer to acquire the company” and has created a formal review process to evaluate its alternatives,