LONDON (Reuters) - U.S. baby product retailer Destination Maternity will continue its pursuit of Britain’s Mothercare after revealing on Wednesday it had two bid proposals rejected.
Mothercare confirmed it had spurned an increased offer proposal from Destination Maternity of 300 pence a share that valued the UK company at 266 million pounds ($453 million).
That proposal on June 1 implied a premium of 29 percent to Mothercare’s closing share price on Tuesday of 232.5 pence. Mothercare shares were up 11 percent at 259 pence by 1100 GMT.
Destination Maternity CEO Ed Krell said: “We are seeking to engage with the board of Mothercare on a constructive basis with the goal of completing a recommended transaction.” He said there was a compelling rationale for a combination of the two companies.
Destination Maternity’s 300 pence proposal comprised 230 pence in cash and shares valued at 70 pence in a new holding company that would be listed on the New York Stock Exchange or Nasdaq but incorporated in the UK, and which would also own the U.S. firm’s existing business.
That structure would allow the U.S. firm to benefit from Britain’s lower company tax rate compared with the United States. Britain’s corporate tax rate has already attracted other U.S. predators, including drug company Pfizer, which failed in an attempt to takeover rival AstraZeneca. Mothercare said it rejected Destination Maternity’s proposal on June 3, saying it “significantly undervalued Mothercare and its attractive prospects,” and had “significant transaction execution risks,” given the proposed transaction structure and tax inversion.
Under Britain’s takeover rules Destination Maternity has been given until July 30 to announce a firm intention to make an offer for Mothercare, or walk away.
“While the offer price should be attractive to shareholders, an initial look at Destination does not suggest to us that it would be an easy deal for Destination to digest,” analysts at Liberum said. “This could draw out other potential bidders.”
Mothercare, hit hard by cut-price competition from supermarket groups and online retailers in its main UK market, issued a profit warning in January and prior to Wednesday its shares were down 41 percent so far this year.
The company, which has more than 1,200 stores worldwide, has been trying to fight back by revamping UK stores, closing weaker ones and expanding online and abroad.
It had aimed to make a profit on its loss-making British operations by 2015, but said in January that 2016 to 2017 was now more realistic.
Nasdaq-listed Destination Maternity, which trades from over 1,900 retail locations, has a market value of 316 million pounds. Its shares have fallen 23 percent so far this year.
Cantor Fitzgerald analyst Mike Dennis noted that the economic value of Destination Maternity’s bid proposal was 381 million pounds - 266 million pounds in equity, average net debt of 65 million pounds and a pension deficit of 49.7 million pounds.
($1 = 0.5877 British Pounds)
Reporting by James Davey; editing by Tom Pfeiffer and Jane Merriman