The company has submitted two non-binding written proposals to Mothercare about a possible union, and both have so far been rejected.
Mothercare said Destination Maternity’s offer of 266 million pounds ($456 million) “significantly undervalued” the company and its “attractive prospects.”
Ed Krell, Destination Maternity’s chief executive said, “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.”
He added, “Mothercare and Destination Maternity are highly complementary businesses, with strong and trusted brands in their respective markets. Together, a combined company would provide a global platform to expand both Destination Maternity’s maternity apparel business and Mothercare’s baby and children’s business. This is consistent with Destination Maternity’s stated strategic objective to enhance our position as a global leader in maternity apparel, including through international expansion.”
In response to Destination Maternity’s announcement, Mothercare chairman Alan Parker said, “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.”
Mothercare’s preliminary results for the 52-week period ended March 29, 2014 showed worldwide network sales up 0.5% to 1.2 billion pounds ($2 billion), and total international sales up 6.4%. Profit before tax was up 61 percent to 9.5 million pounds ($16.3 million) from 5.9 million pounds ($10.1 million) in the previous year period.
At the time of the results statement, Parker said, “Despite the increasing effect of currency devaluation on reported numbers, we have seen good growth in International, both in retail sales and profits with all four regions contributing strongly. In conjunction with our franchise partners, we have good visibility of future plans, which continue to show double-digit space growth.”
Mothercare called Destination Maternity’s proposal “insignificant,” and cited concerns over the deliverability of value to its shareholders and the lack of strategic rationale for a combination.
In accordance with UK Takeover Code, Destination Maternity will have until July 30, 2014 to announce a firm intention to make Mothercare an offer, or declare its intent to refrain from making an offer at all.