‘WH Smith’ chain rescue comes with ‘considerable risks’

“This has all the hallmarks of an adventurous equity play,” wrote Mr Justice Hildyard in his judgment published yesterday after he last month approved the restructuring, which involves the closure of 150 of the books-to-paperclips retailer’s 450 stores.

He added that the group’s turnaround plans “might strike the sceptic as more in the nature of generic aspirations than concrete grounds for confidence in a successful outcome”.

The chain includes numerous former WH Smith branches across Oxfordshire.

These include stores in Cornmarket, Oxford, and in Witney, Abingdon, Chipping Norton, Didcot, Wantage and Banbury. The takeover came into effect a year ago.

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“The execution risk is very considerable,” Mr Justice Hildyard said, indicating the £3m valuation of the company – compared with its acquisition value of about £40m only a year before – reflected the potential for high losses as well as high profits.

The retailer, which until recently employed about 5,000 staff, was bought last year by Modella Capital, the private equity firm which is also behind Hobbycraft and owned the UK arm of jewellery retailer Claire’s and The Original Factory Shop until they collapsed earlier this year.

It recently bought Flying Tiger, the Danish retailer known for its cut-price homewares, craft kits and notebooks, which operates about 1,000 stores worldwide.

TG Jones in Oxford (Image: Google Maps)

The original owner of WH Smith continues to operate stores in airports, hospitals and railway stations, so Modella quickly rebranded the high street stores as TG Jones.

Sales quickly fell back after the deal, and Modella had warned it could have to call in administrators if the restructuring plan, which involves writing off debts to suppliers and cutting rent for many landlords, was not approved.

The judge approved the plan despite his scepticism about potential success, because Modella had put up new investment to turn it around.

Alex Willson, the chief executive of TG Jones, said last month that approval of the plan “allows us to move ahead with our turnaround strategy”.

“The plan protects the substantial core of the store estate and makes TG Jones a stronger, more sustainable business,” he said.

Court approval was needed for what is known as a “cram down” scheme, as many classes of creditor who would lose money under the scheme rejected it. The model allows courts, in certain circumstances, to impose a restructuring on dissenting classes of creditors.

Fewer than a third of general creditors, who include card makers and pen brands, agreed to the plan and no landlords owning unwanted stores – where rent will be cut to zero or closed – backed the plan.

Small suppliers, such as toy makers, were set to lose at least half the money owed to them by the former WH Smith high street chain under the restructure.