Mothercare has rejected two takeover approaches from Destination Maternity in the latest example of a US company seeking to take advantage of lower UK corporation tax.
Destination Maternity said it contacted Mothercare on 1 June to propose a takeover valued at £266m.
The 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 company's first approach at 250p to 275p a share.
Mothercare shares rose 11% to 258.25p but the gains fell short of the proposed bid price.
In a statement that took Mothercare by surprise, Destination Maternity said its approach was a solid basis for talks and that it was disappointed that the UK mother and baby group had refused to discuss the proposals.
The Philadelphia-based company said the combined business would be incorporated in the UK with its shares traded in the US. It did not mention tax arrangements but the proposal follows approaches to other UK companies by US rivals wanting to relocate to the UK for tax reasons while leaving their listing in the US.
Ed Krell, Destination Maternity's chief executive, said there were also good strategic reasons for the combination, including acquiring Mothercare's international operations and combining maternity and baby products.
"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.
"We believe the combination would create a highly attractive opportunity to accelerate the growth and development of both businesses and generate substantial value for our respective shareholders. Given this, we are seeking to engage with the board of Mothercare on a constructive basis with the goal of completing a recommended transaction."
Mothercare has been on rocky ground since January when it warned on profits. The company's dire trading led to the departure of Simon Calveras chief executive in February. It reported better than expected annual profits in May and revealed that banks it owed £46.5m had given its turnaround plan more time.
Alan Parker, chairman of Mothercare, said the US company's offer was too low and that its proposals were risky.
"The board has given these proposals full and thorough consideration. We do not believe they 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."
The drugs companies AstraZeneca and Shire have both rebuffed approaches proposing a so-called tax inversion into the UK by US competitors. Both UK companies highlighted the risks involved in moving a combined company's tax base to Britain.
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 as business was hit by the freezing US winter.
Sanjay Vidyarthi, an analyst at Liberum Capital, said: "A brief look at Destination's financials suggests that its 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. Expect the shares to go up, and other bidders may emerge, but we can see why Mothercare has rejected Destination's proposals."
Destination Maternity claims to be the world's biggest seller of maternity wear but its attempts to expand outside the US have been limited. Mothercare's international operations are likely to be the main attraction for the US company but it said it could help revive Mothercare's UK stores by adding its own products.
source: the guardian uk
