Mothercare: Destination will go nowhere if new boss can get retailer back on track, says Nils Pratley

Guardian (UK) |

Destination who? US group Destination Maternity suffers as a would-be bidder for Mothercare from the fact that few in Britain have heard of it. That's not an insurmountable problem as Mothercare's shareholders, wearied by profits warnings, might be inclined to give a fair hearing to any credible approach. The trouble is, Destination Maternity hasn't brought much in the credibility department either. The company is worth $317m (pounds 186m) and has made a pounds 266m takeover approach in which the bulk of the bill would be paid in cash. The US group is free of debt but Mothercare had pounds 46m of borrowings at the last count. Where's the financing for such a bold attempt? Destination Maternity was silent on the subject. Thus Mothercare chairman Alan Parker had no difficulty in giving a thumbs-down to the proposal not just on grounds of value but on "deliverability" and "significant execution risk". For good measure, the US group wants to execute a Pfizer-style "inversion" in which the tax domicile would sit in the UK. As with Pfizer, there is a danger that US politicians will put an end to these tax excursions. But what about pure value? Would 300p be a contender if Destination could pay 100\% cash and show certain funding? Well, its chances would obviously be greater but one suspects that Mothercare investors' patience is not yet exhausted. The company has been a disappointment for ages but the self-help tale is still (just about) intact. Fix the over-spaced and troubled UK division, runs the theory, and the impressive and reliable international end can generate some proper value. Parker says his next permanent chief executive will be appointed imminently; he or she should probably be given a fair crack. That said, a cash offer at 350p-plus from a more credible source (there are rumours) would test shareholders' resolve. But Destination's proposal looks to be going nowhere.

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