US retail boss flies to London to bolster bid for Mothercare: Destination Maternity in pounds 266m takeover attempt UK firm's investors urged to press board into talks

Guardian (UK) |

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The boss of a US retailer that has laid out two takeover plans for Mothercare is to fly to London to persuade shareholders to put pressure on its directors to enter talks. The Destination Maternity chief executive, Ed Krell, is to embark on a charm offensive to persuade investors of the merits of a deal and outline the rationale of his pounds 266m takeover proposal. Last night he called on shareholders to press the board into talks. "We really think our latest offer of pounds 3 [per share] is very attractive. We are very hopeful . . . they will want Mothercare's board to engage with us," he said. Destination Maternity runs 1,906 stores in North America but is smaller than Mothercare in terms of stock market value. It claims to be the world's biggest seller of maternity wear but its attempts to expand outside the US have been limited. It intends to revive Mothercare's 220 UK stores by adding its own products. Krell talked of a "halo effect" - by luring in shoppers earlier in their pregnancy. Destination Maternity's approach at 300p a share, including 230p in cash, was 29\% higher than Mothercare's closing price on Tuesday and 90\% more than the price on 26 May - the day before the US firm's first approach at 250p-275p a share. Mothercare shares last night closed up 19.5p at 252p, well short of the proposed bid price. The Philadelphia-based company said the combined business would be incorporated in Britain with its shares traded in the US. Mothercare is the third UK business in recent weeks to be targeted by US companies wanting to relocate to the UK for tax reasons while keeping their share listing in the US. The British drug companies AstraZeneca and Shire have both rebuffed approaches from rivals proposing a so-called tax inversion into the UK. Krell denied tax savings were the main reason behind the proposed takeover. "It's the icing on the cake, not the cake itself. The cake is creating a global leader." He added: "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 another attraction. Krell refused to say whether he would mount a hostile bid if he could not persuade the firm to talk takeover terms. "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 has struggled in recent years and in January issued a profits warning. Its dire trading led to the departure of Simon Calver as chief executive in February. But it reported better than expected annual profits in May and revealed that banks to which it owes pounds 46.5m had given its turnaround plan more time. Alan Parker, the Mothercare chairman, said the US company's offer was too low and its proposals did not "reflect the inherent value of Mothercare to our shareholders or its prospects for recovery and growth. In addition, we have significant concerns about the deliverability of these proposals. Mothercare has a very strong and valuable international business and significant potential for sustained improvement in the UK." Sanjay Vidyarthi, an analyst at Liberum Capital, suggested that Destination's "ability to execute the deal is not clear-cut. The rationale for the business combination is also not obvious in terms of solving Mothercare's UK problems." Destination Maternity has also suffered poor trading and issued a profit warning in April, predicting falling annual sales. Its net profit for the three months to the end of March almost halved. Krell accepted that the "retail environment remains very challenging in the US" but pointed to the firm's turnaround since he took the job in 2008, with profits more than doubling and debt being reduced to zero from $118m (pounds 86m) in 2006. One top-10 Mothercare shareholder argued that the company was undervalued because the focus was on its loss-making UK business and not its international success. Matthew Tillett, a portfolio manager at Allianz Global Investors, said: "How many UK retail businesses have successfully exported their brand overseas? It is certainly easy to think of many that haven't: Tesco, Marks & Spencer, Dixons, Laura Ashley, Mulberry, to name a few. Mothercare is one that has." Destination Maternity has until 30 July to make a formal offer or walk away. Captions: Baby shoes at Mothercare. The retailer has rejected two takeover bids from Destination Maternity, the US firm which says it can revive the loss-making UK operation Photograph: Chris Ratcliffe/Bloomberg/Getty

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