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WH Smith plans books expansion

By This Is Money
Updated: 03:13 EDT, 10 August 2007

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High street retailer WH Smith is considering tightening its hold on the High Street books market by buying the British arm of bookseller Borders.

Borders, which is the second largest bookseller in the United States, announced in March that it was pulling out of the UK in a move to focus on the fortunes of its underperforming US business.

Private equity firms had been seen as the most likely bidders for the UK operation, but it is now understood that WH Smith has its sights on the firm.

However a bid from WH Smith could run into difficulty due to competition issues, with objections from the books industry and smaller retailers if a bid for Borders in the UK was successful.

Borders employs around 2,000 people in the UK and operates 71 stores, consisting of 41 Borders stores, 27 Books etc stores and three Borders express sites. It is thought that the sale could generate bids of around £50m.

WH Smith is estimated to hold a 16% share of the British books market, while Borders' share is thought to stand at around 7%.

It is likely the books industry will try to fight off a tie-up of the two groups. Last year activists lobbied for the merger of Waterstone's and Ottakar's to be referred to the Competition Commission, although the deal was later approved by the regulator.

WH Smith chief executive Kate Swann has helped spark a turnaround of the retailer as she moved away from entertainment sales such as DVDs and CDs to focus the business on its core books, news and stationery products.

She has implemented a number of changes including the sale of its US and Asian operations and its publishing division Hodder Headline. The group also demerged its news distribution business, Smiths News, last year.

Borders only entered the UK in 1998 when it bought the Books etc chain, but has said the division has been hit hard by the 'challenging retail environment' of the past year.

Both Borders and WH Smith have come under intense competition in recent years from the growth of online retailers such as Amazon.com as well as from the growing trend for supermarkets to supply small ranges of cut price titles.

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