How new owner became all powerful in ‘high stakes’ attempt to revive former WH Smith chain

A picture


Shoppers at WH Smith were once accustomed to being offered cheap chocolate stacked high at the counter while buying their morning newspaper,Now, the chain’s former high street stores have themselves become the subject of a cut-price deal – as the low-profile investment group that snapped them up appears set to pay less than half of the original cash price,The paperclips to books chain had notched up 233 years on the British high street when it was bought by Modella Capital last summer,In less than a year, the future looks very different for the chain, which was hastily rebranded to TG Jones,First established in Little Grosvenor Street in London by Henry Walton Smith and his wife, Anna, WH Smith grew rapidly in the 19th century, building a newspaper distribution business as the railway network expanded.

Last week proposals were announced for a swingeing restructure under which up to 150 of its remaining 450 stores could close and thousands of jobs cut.Documents sent to creditors, seen by the Guardian, reveal how the Mayfair firm Modella has simultaneously positioned itself as a key creditor, landlord and brand owner to the TG Jones operating company.What’s more, Modella expects to have snapped up the former WH Smith high street business – including its stores and Swindon head office – for no more than £20m, plus taking on its debts.The WH Smith travel stores, in railway stations and airports, were not part of the deal and remain owned by its original stock market-listed parent company.When the private equity group first announced it was buying the chain’s high street arm in March last year, the deal was valued at £76m, including £52m of cash.

By the time that deal was finalised in June, the equity – or cash – figure had been knocked down to about £40m, according to WH Smith,WH Smith’s parent company said it had accepted the lower price after “a period of softer trading”,Only £10m of that was paid upfront,A further £30m to £32m was due later, based on trading performance and the realisation of “deferred tax assets” – understood to be related to accounting benefits from past losses at the business,In the restructure documents sent to creditors, Modella said: “Based on current forecasts, and trading conditions to date, the only further sums to be paid to WH Smith in the near term are expected to be in relation to the realisation of relevant tax assets within the business.

”It is understood the tax assets are expected to be worth about £8m, meaning in all the takeover could involve no more than £18m going to WH Smith.The documents also reveal that Modella has already taken control of some major assets in TG Jones’s corporate setup in the 11 months since it took charge.Modella now directly owns TG Jones’s Swindon headquarters, having carved it out from the operating company, paying £7m to TG Jones, shortly after the acquisition.The documents indicate the investment firm is now owed £2.1m in rent on the premises from TG Jones.

This sum will be written off if the restructure plan is agreed by landlords.The plan is due to be finalised by the end of June.If the restructure is approved, TG Jones will sign a new agreement under which it will be charged 25% of the rent on its headquarters for a year, in line with some other landlords of TG Jones stores.It is understood that this payment will be accrued as a debt on the books and there is, as of now, no intention by Modella of collecting it in cash.Any cash payments out of TG Jones have to be approved by Aurelius, the one-time Body Shop owner that provided TG Jones with a rescue loan of up to £35m this month.

Modella also owns the rights to the fictitious “family” brand name TG Jones and is owed 1.03% of net revenue in royalties each month.While the £2.9m in royalties so far due since the takeover are set to be wiped out if the restructure is approved, the documents show that half the ongoing fees will then be due until the end of June 2029.They will then return to the full rate.

Modella has said the royalty fees are on a strictly no-cash basis and no fees are intended to be paid in the future, under the terms of its deal with Aurelius.However, if TG Jones should fall into administration, or return to profitability, the arrangement would enable any fees owed to be attributed to Modella.Modella has lent £10m to help keep TG Jones trading through this year, charged at 12% interest, according to the documents seen by the Guardian.No cash payments on the loan have been paid so far.Any future cash payments will be limited to half the amount due until June 2029 if the restructure plan goes ahead and must be approved by Aurelius.

The Modella loan supplements the Aurelius rescue loan, which will be increased to £40m under the restructure plan.The restructure documents show that Aurelius is the first creditor to be paid in any insolvency process after HMRC and employee pay.Modella’s debts fall immediately behind Aurelius and ahead of unsecured creditors such as suppliers and landlords.It is understood that, as a result, Modella is unlikely to realise any debts owed.Retail insiders have long expected Modella to have to close about 100 of the former WH Smith stores, given the changing shape of UK high streets and shopping habits – with many of the goods it sells now available more readily online or at cut-price rivals such as The Works or Card Factory.

The chain has outlasted a string of high street stalwarts that have collapsed since the financial crisis, including Woolworths, BHS and Debenhams.Its previous owner, WH Smith Group, may have responded to criticism about its flooring and shabby stores with a round of investment in recent years but many outlets still appear out of date after a long period of cost-cutting.TG Jones has stopped paying business rates and delayed payments to suppliers as it attempts to conserve cash.It raised the prospect of bailiffs arriving at stores to demand business rates owed to local authorities.It warned creditors this month that it feared running out of money if they do not approve the restructure, after sales slumped by 12% between September and March.

It has blamed “weak consumer spending” and “the forced name change from WH Smith”.The situation shines a further spotlight on the actions of Modella after the collapse of two other high street retailers under its ownership – Claire’s and The Original Factory Shop, with the loss of about 2,500 jobs.The UK-based firm was set up by a group of restructuring professionals four years ago.In its short existence, Modella has gained control over businesses totalling about 900 shops and employing about 10,000 staff.It has also gained a reputation for rapid and hard-nosed restructuring, putting Hobbycraft, the arts and crafts retailer which it bought in 2024, and The Original Factory Shop through an insolvency procedure known as a company voluntary arrangement in order to reduce rents and close stores within months of taking them over.

The group relies on a mix of its own funding and backing from specialist funders including the Secure Trust Bank and Aurelius.It is part of the Hay Wain Group, controlled by the former Touche Ross and RJP accountant and turnaround expert Jamie Constable, who co-founded the investment firm Rcapital in 2004.His group now includes the stock clearance advisory firm Retail Realisation, which has worked on clearing stock from some of Modella’s collapsed businesses, including The Original Factory Shop.It is understood Modella won the bid for WH Smith’s high street chain partly because it had a compelling plan to develop and expand the business.Expansion appears a long way off.

One creditor says: “I think they genuinely believe they can make a good fist of it and are creating a national retailer,” But the source adds: “I wouldn’t give them more than a one in three chance,”Vernon Dennis, the head of business advisory at the law firm Howard Kennedy, said: “This is a high-stakes test for Modella; if it can combine a restructuring of its balance sheet and consequent cost discipline with a genuine retail turnaround, TG Jones could stabilise; if not, it risks becoming a larger version of the failures we’ve already seen,”Modella declined to comment,
businessSee all
A picture

Global oil inventories falling at record pace amid Iran war; US producer price inflation hits four-year high – as it happened

Global oil stocks are being run down at a record pace as supply losses mount due to the ongoing Iran war, the International Energy Agency has warned.In its latest outlook report, the IEA reports that global oil inventories fell by 129 million barrels in March, and by a further 117 million barrels in April, as countries dipped into their reserves to cover the shortfall following the Middle East conflict.The IEA, which ordered the largest release of government oil reserves in its history in mid-March, reports:double quotation markMore than ten weeks after the war in the Middle East began, mounting supply losses from the Strait of Hormuz are depleting global oil inventories at a record pace.The IEA also forecasts weaker demand this year, as the jump in prices for crude oil and refined products leads to demand destruction.World oil demand is forecast to contract by 420,000 barrels per day this year, to 104m bpd, which is 1

A picture

Lab testing group Intertek to back £10.6bn takeover by Swedish firm EQT

The laboratory testing company Intertek has become the latest FTSE 100 business to agree to a takeover, backing a £10.6bn approach from a private equity firm owned by Sweden’s billionaire Wallenberg family.After rebuffing three previous approaches, Intertek’s board said it was “minded to recommend” the £60-a-share tilt from the Swedish buyout firm EQT to shareholders, if there was a firm offer.The deal is worth £10.6bn including debt, or £9

A picture

Fortescue ordered to pay Yindjibarndi traditional owners $150m in record native title payout

Mining company Fortescue has been ordered to pay $150m in compensation to traditional owners over cultural losses caused by the multibillion-dollar Solomon Hub iron ore mine – the largest compensation payout in native title history.The mine, which has extracted millions of tonnes of iron ore and generated an estimated $80bn in revenue for Fortescue since operations began in 2013, was approved by the Western Australian government without the consent of the Yindjibarndi traditional owners.The Yindjibarndi Ngurra Aboriginal Corporation (YNAC) launched the compensation claim in 2022 and sought $1.8bn, including $1bn for cultural damage, $678m for economic loss, $34.85m for the destruction of sites, and $112

A picture

British Steel: more questions than answers on the future | Nils Pratley

“One of the proudest things we have done in government,” said Keir Starmer in Monday’s big speech about the decision a year ago to recall parliament in order to take control of British Steel at Scunthorpe.It was an odd boast because last year’s action was merely an emergency exercise in saving the patient, as opposed to getting British Steel on its feet and out of the hospital. Taking control meant the Chinese owner, Jingye, could not turn off the two blast furnaces but meant the government was on the hook for operational losses, which will be £615m and counting by next month according to the National Audit Office (NAO).Full nationalisation is now on the cards, which will end the limbo-land state of ownership and give some comfort for 4,000 workers. But it is also the point at which the government will have to choose between its barely described “potential future options” for British Steel

A picture

E.ON agrees to buy Ovo in deal to create UK’s biggest energy supplier

The German energy group E.ON has agreed to buy struggling UK rival Ovo in a deal that would create Britain’s biggest gas and electricity supplier by number of households served.The combined company will supply about 9.6 million customers, overtaking the market leader, Octopus, which serves almost 8m homes in the UK.The value of the deal was not disclosed, but reports have estimated it at £600m

A picture

Thinktank calls for ‘double lock’ England private rent cap to ease living costs

One of the thinktanks closest to the Labour government is urging ministers to introduce private sector rent controls in England, as the chancellor weighs up how to ease a surge in living costs caused by the Iran war.The Institute for Public Policy Research (IPPR) has published a paper calling for a rent “double lock”, which would link rent increases to either wages or inflation, depending on which was lower.While others on the left have previously called for rent controls, the IPPR’s extensive links inside government will increase pressure on ministers to include the idea in a cost of living package to be announced by Rachel Reeves later in May.The Guardian revealed last month that Reeves had been considering a one-year rent freeze to deal with a rise in inflation which economists say is now inevitable, but the idea was quickly dismissed by Downing Street.Maya Singer Hobbs, the author of the paper, said: “There are millions of people living with unaffordable housing costs, and if you want to bring those down quickly there are not many options