The exclusive talks with Lagardere, which is being advised by Citigroup, ended after it became clear that the money would have to be used to help plug the £215m deficit in WH Smith’s pension fund.
Last week, The Sunday Times revealed that the shortfall could wreck a proposed takeover of WH Smith by Permira, the private-equity group. It is backing former WH Smith executives Keith Hamill and Simon Burke.
Lagardere is now likely to approach Permira about trying to buy Hodder Headline if the private-equity firm succeeds with its offer. Other publishing groups could enter the fray.
Hodder has been a successful acquisition for WH Smith. Led by Tim Hely Hutchinson, the division publishes authors such as Stephen King and James Patterson and has sales of more than £150m.
WH Smith declined to comment. Permira continues to talk with the retailer, but there are growing doubts about whether it will submit a formal bid.
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Separately, Travelodge, the budget hotel chain owned by Permira and chaired by Hamill, has raised its presence in central London by buying two hotels from Thistle for £55m. The chain has acquired the Thistle Islington and the Thistle London Ryan, both near Kings Cross.
The purchases have been funded through a sale and leaseback deal with Kirkmore Securities.
Travelodge, headed by chief executive Grant Hearn, bought the Queens Moat House hotel in Drury Lane in March.