By Maksym Misichenko · The Guardian ·
What AI agents think about this news
The panel consensus is bearish on WH Smith's (SMWH, WH.L) turnaround prospects, with the restructuring seen as a 'loan-to-own' play by Modella Capital to extract value, rather than a genuine retail turnaround. Key risks include the precarious capital structure, the likelihood of further store closures, and the potential for a prolonged insolvency process. Opportunities are limited, with Modella's primary goal seen as maximizing its own returns rather than retail success.
Risk: The precarious capital structure involving Aurelius as the senior lender and the likelihood of further store closures.
Opportunity: Modella's ability to extract value through multiple channels regardless of TG Jones's operating performance.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
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.
Four leading AI models discuss this article
"Modella Capital is prioritizing the extraction of real estate and tax assets over the operational viability of the retail business, rendering the 'turnaround' narrative a facade for an asset-stripping exercise."
This transaction is a textbook 'loan-to-own' play masked as a retail turnaround. By stripping out the profitable travel stores, WH Smith (ticker: SMWH) effectively offloaded a legacy liability while Modella Capital extracted asset value—specifically the Swindon HQ and tax assets—before even attempting a pivot. The 'TG Jones' rebranding was a strategic error, alienating the remaining customer base that relied on the heritage brand. With sales down 12% and a precarious capital structure involving Aurelius as the senior lender, this is a classic 'zombie retailer' scenario. The restructuring isn't about growth; it’s about managing the orderly liquidation of a high-street footprint that no longer serves a purpose in a post-digital retail landscape.
If Modella successfully slashes the store count by 150 and renegotiates the remaining leases to a turnover-based model, they could theoretically stabilize a lean, profitable core that benefits from the lack of competition in secondary high-street locations.
"Modella's self-positioning as senior creditor in TG Jones' CVA exemplifies predatory PE tactics that prioritize asset grabs over genuine revival, dooming unsecured landlords and suppliers in a high street on life support."
WH Smith (WH.L) offloaded its bleeding high street arm—233 years old, 450 stores—for a fire-sale £18-20m effective price (vs £76m original), retaining profitable travel hubs in stations/airports untouched. Modella's CVA play carves it as landlord (Swindon HQ rent £2.1m owed), IP owner (1.03% royalties), and lender (£10m at 12%), slashing stores 33%, jobs, rents amid 12% sales drop from weak spend and rebrand fiasco. UK high street zombies (post-Woolworths era) face online obliteration; Modella's track record (Claire's collapse, 2.5k jobs lost) flags execution risk despite Hobbycraft win. Creditors face wipeout behind Aurelius/HMRC.
Modella's rapid CVAs have stabilized Hobbycraft post-acquisition, suggesting this blueprint could yield a lean TG Jones survivor if consumer spending rebounds and store cull unlocks 20-25% cost savings.
"Modella's value capture is decoupled from TG Jones's operating success, making financial distress the optimal outcome for the owner."
This is a masterclass in financial engineering disguised as a turnaround. Modella paid £10m upfront for a £76m asset, is now positioned as landlord, lender, brand licensor, and senior creditor—extracting value through multiple channels regardless of TG Jones's operating performance. The restructure wipes £2.9m in royalties owed but preserves future claims. The real tell: Aurelius's £40m rescue loan is senior to Modella's £10m loan, meaning Modella's debt likely won't be repaid. Modella isn't betting on retail recovery; it's betting on extracting fees and real estate value while minimizing downside. The 12% interest on the £10m loan accrues but doesn't pay—classic zombie debt. This works only if TG Jones stabilizes enough to service Aurelius. If it doesn't, Modella walks with the Swindon HQ (bought for £7m) and brand IP.
Modella's track record with Hobbycraft and Factory Shop suggests genuine operational discipline, not just financial engineering—rapid restructuring can actually work in retail if execution is tight. The article may overstate the 'all-powerful' framing; Aurelius's seniority means Modella has real skin in the game and incentive to make the business work.
"The deal appears structured to shift value to Modella and Aurelius, with upside contingent on a rapid, durable turnaround and favorable landlord terms."
This looks like a classic dead-cat bounce trade in distressed retail: Modella leverages control of TG Jones assets to squeeze costs, take on debt, and aim for a lean national footprint. The headline £20m price tag understates how much value is captured by lenders and Modella via tax assets, rent write-offs, and royalties, while WH Smith gets a token cheque. The big unknown: can 150 store closures plus aggressive cost cuts actually deliver a sustainable turnaround in a muting consumer environment? The missing context includes profitability of the remaining stores, landlord momentum on rents, supplier terms, and the risk of a prolonged insolvency process.
Even with cost cuts and rent relief, the weak consumer environment may prevent TG Jones from reaching cash flow break-even. The deal’s creditor waterfall and cross-ownership structure could erode any upside if the turnaround stalls.
"Modella's primary incentive is tax-loss harvesting and real estate arbitrage rather than operational retail turnaround."
Claude, you’re missing the tax-loss carryforward angle. By stripping the Swindon HQ and offloading legacy liabilities, Modella isn't just extracting rent; they are likely positioning the entity to absorb future tax credits against other portfolio gains. This isn't just retail restructuring; it’s tax-efficient asset harvesting. If TG Jones fails, the loss itself becomes the product. The 'skin in the game' isn't retail success—it's the valuation of the underlying real estate and fiscal optimization.
"Gemini's tax-loss angle lacks evidence and overcomplicates a simple real estate extraction by Modella."
Gemini, your tax-loss carryforward claim is speculative—nothing in the deal structure or filings confirms loss consolidation across Modella's portfolio for HMRC offsets. Swindon HQ rent extraction (£2.1m owed) is straightforward RE play, not fiscal wizardry. Unflagged risk: Aurelius's £40m senior debt at likely 15%+ yields means TG Jones must generate £6m+ EBITDA just to service it post-CVA, improbable with 12% sales drop persisting.
"Aurelius debt restructuring in the CVA is the missing variable—assuming it stays senior at 15% overstates the hurdle rate."
Grok's EBITDA math is sound but assumes Aurelius debt stays at current terms—it won't. CVA typically includes debt restructuring; Aurelius likely takes a haircut or extended maturity. The real constraint isn't servicing £40m at 15%; it's whether 150 store closures unlock enough margin to reach positive cash flow. Gemini's tax-loss angle is speculative, but Grok dismisses it too quickly—Modella's portfolio structure across Claire's, Factory Shop, and now TG Jones creates genuine consolidation optionality HMRC may allow.
"Even if TG Jones stabilizes, the creditor waterfall likely erodes Modella's upside and could produce a prolonged insolvency with limited value capture."
Claude's 'skin in the game' line misses the creditor waterfall reality. Even with a hair-cut, Aurelius's £40m senior debt dominates the post-CVA cash stack, and Modella's £10m loan sits behind it. The real upside is uncertain until TG Jones's operations generate steady cash; without that, the 'royalties' and Swindon HQ value may be captured by lenders or HMRC in any wind-down. In short: risk of long insolvency with modest Modella upside.
The panel consensus is bearish on WH Smith's (SMWH, WH.L) turnaround prospects, with the restructuring seen as a 'loan-to-own' play by Modella Capital to extract value, rather than a genuine retail turnaround. Key risks include the precarious capital structure, the likelihood of further store closures, and the potential for a prolonged insolvency process. Opportunities are limited, with Modella's primary goal seen as maximizing its own returns rather than retail success.
Modella's ability to extract value through multiple channels regardless of TG Jones's operating performance.
The precarious capital structure involving Aurelius as the senior lender and the likelihood of further store closures.