UPDATE 1-Destination Maternity gives up chase for UK's Mothercare

Fri Jul 25, 2014 2:19pm EDT

(Adds details, background, shares)

July 25 (Reuters) - U.S. baby product retailer Destination Maternity Corp gave up its pursuit of Britain's Mothercare Plc after having two bid proposals rejected.

Earlier this month Mothercare confirmed it had spurned Destination Maternity's increased proposal that valued the UK firm at 266 million pounds, or $453 million.

That proposal on June 1 was the latest example of a U.S. company seeking to buy a foreign firm in part to take advantage of lower corporate tax rates abroad.

"We are disappointed that the shareholders of Mothercare have not supported our proposal and that the board of Mothercare was unwilling to allow us to conduct customary due diligence and engage in discussions," Chief Executive Ed Krell said in a statement on Friday.

Destination Maternity's shares were unchanged at $22.95 in afternoon trading, valuing the company at about $315 million.

The company said it had hoped that the combination of the two companies would create the largest maternity, baby and children's products retailer.

Under Britain's takeover rules Destination Maternity had until July 30 to announce a firm intention to make an offer for Mothercare, or walk away.

Mothercare, hit hard by cut-price competition from supermarket groups and online retailers in its main UK market, said on Friday its Chief Financial Officer Matt Smith had resigned, months after its Chief Executive Simon Calver quit.

Mothercare had aimed to make a profit on its British operations by 2015, but said in January that 2016 to 2017 was now more realistic.

Destination Maternity, which operates 1,901 stores across U.S. and Canada and grappling with falling sales, said earlier this month its full-year earnings would be below its forecast.

The company, which is shutting a number of underperforming stores, reported a 5.5 percent fall in third-quarter sales. (Reporting by Karen Rebelo and Shailaja Sharma in Bangalore; Editing by Savio D'Souza)

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