U.K.’s Mothercare rejects Destination Maternity merger offers

Philadelphia – U.K. specialty maternity retailer Mothercare Plc has rejected two non-binding written merger proposals from Destination Maternity Corp. In a press release, Destination Maternity said its second proposal, delivered June 1 2014, would combine the two companies under a new U.K. holding company which would be listed in the U.S., for a total payment of $453 million to Mothercare shareholders.

Destination Maternity said specific advantages from its merger offer include creating a global leader in maternity, baby and young children’s apparel and products with more than 4,300 global stores and $2.5 billion in global network retail sales, utilization of excess Mothercare U.K. retail space to establish stand-alone Destination Maternity stores, and leverage of Mothercare’s direct and online expertise to enhance Destination Maternity’s multichannel offering.

In response, Mothercare said the Destination Maternity offer significantly undervalued the company, did not address material concerns regarding deliverability of value, and poses risks in its structure and with tax inversion.

“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,” said Ed Krell, CEO and a director of Destination Maternity. “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."

Destination Maternity did not mention taxes in its press release, but the U.K. corporate tax rate is scheduled to drop to 20% in 2014, while the U.S. corporate tax rate is currently 38%. The company said it may alter or withdraw the deal at any time. Destination Maternity is being advised by Bank of America Merrill Lynch and Skadden, Arps, Slate, Meagher & Flom LLP.  


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