US maternity wear retailer Destination Maternity said that the UK chain Mothercare has rejected two proposals to combine the businesses.
Destination Maternity’s chief executive (CEO), Ed Krell, now plans to step up the pressure by flying to London and persuading investors of the deal’s merits and to outline the rationale of his £266m (US$455m) takeover proposal.
The Philadelphia-based company proposes that an enlarged company resulting from a merger would be incorporated in the UK, with its shares traded in the US.
Mothercare is the third UK business to have recently been targeted by US companies aiming to relocate to the UK for tax reasons while keeping their share listing in the US. British drug companies AstraZeneca and Shire have both rejected approaches from rivals proposing a so-called tax inversion into the UK.
However, Krell said that tax advantages were not the main reason behind the proposed takeover of Mothercare. “It’s the icing on the cake, not the cake itself. The cake is creating a global leader,” he stressed.
“We believe there is a compelling strategic rationale for a combination of Destination Maternity and Mothercare, which would create the undisputed global leader in maternity, baby and young children’s apparel and products.” Mothercare’s 1,221 international stores are a further attraction.
“We want to do a transaction that has the support of the Mothercare board and we want to engage with them on a friendly basis. If something really makes sense there should be a way to make that happen.”
Mothercare responded that it had reviewed Destination Maternity’s revised proposal and believed that it undervalued the company. The UK company added that the revised bid also failed to address its material concerns about “significant execution risk” and delivering value to its shareholders.
Its other concerns include the “lack of strategic rationale for a combination” and uncertainty on the proposed financing arrangements. The company said its board is still confident “in the ongoing execution of Mothercare’s strategy as an independent company and that its successful delivery will create significant value for shareholders.”
The UK’s Takeover Code requires that Destination Maternity must announce whether it plans to make a binding offer for Mothercare by 30 July.
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