WH Smith buyer ousted from auction of struggling discounter Poundland

The investment firm which has agreed to buy WH Smith's high street operations has been eliminated from the auction of Poundland, the struggling discounter.

Sky News has learnt that Poundland's owner, Pepco Group, has shortlisted two rival firms to buy Poundland, which needs a capital injection of more than £50m to aid a turnaround plan.

A Pepco insider said on Friday that Hilco, the former owner of HMV and Homebase, and former Laura Ashley-owner Gordon Brothers were involved in a two-way race to buy the chain.

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They added that a decision on a preferred bidder was likely within days.

Pepco said this week that underlying earnings at Poundland could be wiped out in the current financial year, underlining the scale of the challenge facing a new owner.

If a deal does get agreed with either of the remaining bidders, they would also be required to repay roughly £30m of debt owed to Pepco.

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Poundland employs more than 15,000 people across an estate of over 800 shops in the UK and Ireland.

Industry sources say that roughly 100 stores are likely to be earmarked for closure by a buyer given their poor performance.

Recent tax hikes announced by Rachel Reeves, the chancellor, in last autumn's Budget have increased the financial pressure on high street retailers.

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In recent months, chains including Lakeland and The Original Factory Shop have changed hands amid challenging circumstances.

Advisers at Teneo are advising on the Poundland auction.

None of the parties involved in the process would comment.