By Bill Wilson BBC News Online business reporter

WH Smith has seen its core markets eroded over the years

News that troubled retailer WH Smith is the target of a takeover bid will have lifted much-bashed shareholder spirits.

The company, which is coveted by private equity group Permira, has had little to cheer about in recent years.

Once it was a principal outlet for books and records for a vast proportion of the public, now it has lost book sales to rivals like Waterstone's and Ottakar's, and to online sellers such as Amazon.

The days when bookworms visited WH Smith for a Penguin Classic have long gone, with the shelves now stocked almost entirely by book-chart favourites.

I am afraid it is one of those retail names that, if it was not already around, you wonder if anyone would bother inventing it today? Paul Smiddy, RW Baird

The problem is that those same popular sellers can now be picked up at the local supermarket.

And shoppers seeking DVDs and compact discs are also just as likely to pick them up at their local Tesco too, along with their envelopes and greetings cards, other traditional WH Smith staples.

Supply problems

Paul Smiddy, an analyst at RW Baird, told BBC News Online: "The problems at WH Smith go back quite a long way. The group was founded on the exploitation of the rail network, but it has failed to move with the times.

"I am afraid it is one of those retail names that, if it was not already around, you wonder if anyone would bother inventing it today?

"It has lost its domination in its core categories, and more-or-less pulled out of music sales, and there are other problems too.

WH Smith facts Founded 1792 by Henry Walton Smith Started as a newsvendor in central London Britain's leading news outlet by mid-19th century Founding family was ennobled in 1891 742 shops across the UK More than 31,000 employees Sales of �2.9bn in 2003 Outlets at major UK airports and railway stations

"WH Smith depends very much on its Christmas sales, and there have been problems in the last couple of years with sales execution, and supply.

"Why should anyone shop at WH Smith? They have to totally re-invent themselves."

There has also been criticism that its store-layouts are not ideal, and that is overlooking possible areas of strong sales.

Robert Clark, research director at Retail Knowledge Bank, said: "They do not make the most of their home office supplies or educational and schools material."

However, as well as an eroding sales base, there has been strong shareholder criticism of executive performance over the past year, which has coincided with some generous remuneration for directors.

Pension pot

Last year Beverley Hodson, the former managing director of WH Smith, received a �112,200 payment after she was passed over for the job as chief executive. She was sacked within weeks of this deal after a disappointing Christmas.

Shareholders have also been angered by a �2.6m cash and shares payment awarded to Kate Swann, the successful applicant for the group's chief executive post back in November.

In his six years as chief executive, embattled chairman Richard Handover received more than �4m in pay and bonuses, and accrued a �5m pension pot, which has also inflamed shareholders.

The offer, were it to be recommended, would give investors at least what they could get from a successful Swann-led turnaround - but without any of the execution risks and without the risk of any sector-driven downside Matthew McEachran, Investec

Yet despite these high salaries, the profits warning made by WH Smith in January was its third in a year.

"Many of the existing management players have been at the helm for these past few years, and what has been happening casts light on them," said RW Baird analyst Smiddy. "They have to take responsibility for things like supply."

Now there is to be another new start, as the long-suffering shareholders await the annual results and a strategic update from Kate Swann on Thursday, which may provide more takeover details and clarify the number of jobs to be lost.

Shareholders may also be told there is to be a dividend cut for the first time in a decade.

Some analysts have said that WH Smith will lose even more ground to rivals unless it cuts bureaucracy and speeds up its decision-making process.

"There has to be rapid evolution," warns Mr Smiddy. "I do not know what they are going to come up with, but it will have to provide immediate impact."

Distribution network

Matthew McEachran, an analyst at Investec, reckons shareholders shouldn't even wait to find out what plans are in the pipeline.

He recommends either selling WH Smith shares in the market now, or waiting for the bid to be recommended and then offloading.

"The offer, were it to be recommended, would give investors at least what they could get from a successful Swann-led turnaround - but without any of the execution risks and without the risk of any sector-driven downside," he explains.

WH Smith said it met Permira last week after the investment company offered �940m, or 375p a share, for the group. The bid was 44% more than Friday's closing price of 260p.