Mothercare rejects US rival Destination Maternity's takeover bids
Struggling chain rejects two approaches from US giant
Wednesday 02 July 2014
Mothercare has rejected two bids from US rival Destination Maternity which is eyeing a takeover of the struggling UK High Street chain.
The baby-products seller announced today it had rejected two takeover bids from Destination Maternity, which has 1900 stores across the US.
The suitor approached Mothercare’s board on May 27 with an offer worth between 250p and 275p a share, and followed this up with a 300p a share bid a few days later, which valued the business at £266 million.
However, both offers were rejected despite Mothercare’s shares sitting at 157.8p just before the approach — a 90% premium.
Mothercare shareholders today supported its board’s decision to reject the bid, with sources close to the company pointing out that its share price was nearly 500p a year ago.
Matthew Tillett, portfolio manager at top-10 shareholder Allianz Global Investors, said the company was undervalued because all the focus is on its loss-making UK business, not its strong international operation.
He said: “How many UK retail businesses have successfully exported their brand overseas? Over the past six years, Mothercare’s international network sales have risen from £286 million to £729 million [and] international profits have risen even faster — from £9.6 million to £45 million over the past six years.
Destination said it wants to team up with Mothercare to enter the UK High Street for the first time by taking over some of the company’s loss-making British stores.
The Philadelphia-based company said the combined business would be based in the UK with shares listed in the US. It follows other takeover approaches by US companies to British drugs giants AstraZeneca and Shire to take advantage of lower UK corporation tax.
The takeover would give Destination “international revenue streams, and the tax position will be beneficial, which are clear advantages”, Peel Hunt analyst John Stevenson told Bloomberg.
Shares in Mothercare jumped 10% today on the news, hitting 260p, but were still some way off the offer price, suggesting few in the City believe the company is likely to change its mind on the deal.
Analysts also believed the approach made little sense to Mothercare, especially since the offer would be 230p per share paid in cash and 70p in shares in Destination Maternity, with some suggesting the US firm’s balance sheet is looking shaky.
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