Hamill and Burke have to convince investors that the present CEO can't pull off the trick.
Keith Hamill has resisted saying publicly: 'I told you so.' But his involvement in the takeover bid for WH Smith shrieks the sentiment as effectively as a massive hoarding erected outside the retailer's headquarters.
In 1997, when WHS was hunting for a new chief executive, finance director Hamill made a serious play for the job. He had some big ideas and was happy to discuss them with investors. The board, however, decided to keep the finance director in his place and instead promoted Richard Handover, who had headed the newspaper distribution business.
The reaction of the company's share price was telling. It had stood at 374p but lost 6p when Handover's appointment was announced. The stock market's judg- ment was perspicacious. Permira, the private equity house that has teamed up with Hamill and former Hamley's boss Simon Burke to make the bid, is offering shareholders just 375p a share, although the price was as low as 220p before bid talk began.
Given the dismal share price performance, it is perhaps not sur- prising that Handover is no longer chief executive. What is
astonishing is that he has been promoted to chairman. When Sir Derek Higgs declared that such a move would not be his idea of corpor-ate governance best practice, it was because he feared that a CEO promoted to the chairman's office might fail to take an independent view. In Handover's case, the objections would seem to be far more fundamental and come under the 'rewards for failure' category.
Acknowledging that there had been failure in the business, WHS sacrificed Beverley Hodson, whom Handover had recruited to run the UK shops, rather than the likeable man at the top. Hamill might be tempted to remind shareholders of how the board deprived them of his talents as a chief executive, but he has since risen above CEO status. Already chairman of Moss Bros, he is contemplating only a part-time interest in WHS. It is Burke who wants to run the show, and those who have watched his career so far reckon he is well qualified for the job.
Conventional retail wisdom over the future for WH Smith is to cite the increasing competition that the business faces and sigh: 'Who needs it?' But Burke, like Hamill, knows the business from the inside and believes much can be done to make it better. He gained experience of WHS when working at Richard Branson's Virgin Group. As CEO of Virgin OurPrice, a joint venture with WHS, Burke had a seat on its board.
A youthful looking mid-forties, Burke has the appearance of one shaped in the Branson Notting Hill school and, despite an outwardly laid-back approach, he has the ambitions to match those of his mentor. He wants to run a big business and, unlike many of his generation, is happy to do so in the publicly quoted arena.
The latest figures show that firms have been exiting the stock market
at an alarming rate in recent years. In 1997, there were 1,600 fully listed companies, but by 2003 the number was 910. Organisations such as Permira taking public companies private are partly to blame. But it's a safe bet that if the bid for WHS succeeds, Hamill and Burke would be keen to bring the company back into the public arena.
It was because Branson changed his mind about floating the Virgin Entertainment Group, with Burke as chief executive, that the two parted. In a move that many thought bordered on the foolhardy, Burke headed to Hamley's. The resurrection he performed in four years was worthy of a Harvard case study. He analysed the brand's strength, determining that it hinged on restoring the Regent Street store to the exciting emporium of its glory days. He launched a direct sales business. Then he took the Hamley's area of expertise and started a new company on the back of it: Bear Factory.
Selling teddy bears is highly profitable and Hamleys now has almost 40 shops doing nothing else. The soft-toy success caught the eye of Baugur, the Icelandic raider that is building a presence in British retailing, and last year it bought the company for close to £60 million.
Hamill and Burke do not have to convince the shareholders of WHS that they could work magic on that tired and shrinking business; they had to persuade only Permira of that. Instead, they must convince those investors that Kate Swann, the latest CEO at WHS, will not be able to pull off the trick. Following their recent experiences, investors are more than likely to be tempted to take the money and not give Swann the benefit of the doubt. But for those who believe that WHS is not a doomed brand, Permira is offering shareholders the chance of a continuing equity involvement.
That might be an attractive option. For Hamill and Burke are clearly motivated by much more than the money they stand to make through the Permira deal. They want to show the WHS directors and one R Branson just how mistaken they were.