Top Mothercare investors back rejection of US takeover

Major shareholders in Mothercare have this weekend backed the chain’s rejection of a £270m takeover bid from an American rival, dealing a bitter blow to its chances of success.

The investors — Fidelity and Allianz — who between them own more than a fifth of the British chain’s shares, have dismissed approaches from Destination Maternity as “opportunistic” and “inadequate”, indicating that the offer would have to be raised significantly for it to go any further.

The public show of support will be hugely disappointing to the Americans who have had two bids rejected by Mothercare and had hoped to persuade shareholders to support their overtures.

The bid is another example of a US company targeting a British one so it can relocate to the UK for tax reasons.

Last week, Ed Krell, Destination Maternity’s chief executive, called on investors to press the board into talks after jetting in from the company’s Philadelphia base and embarking on a City charm offensive.

“We really think our latest offer is very attractive. We are very hopeful...they will want Mothercare’s board to engage with us,” he said.

That now seems highly unlikely to happen after the intervention of Fidelity and Allianz, Mothercare’s second and fourth biggest investors with nearly 21pc of the company.

“Given the absence of a chief executive at Mothercare, the approach by Destination Maternity could clearly be viewed as opportunistic...we would prefer the business to continue...on a stand-alone basis,” Paras Anand, Fidelity’s head of European equities, told The Sunday Telegraph.

“We’re not interested in a bid. We think it was an inadequate offer that is well below the true value of the company,” Simon Gergel, head of UK equities at Allianz Global Investors, added.

The bid surprised the City because Mothercare has been beset by problems in the UK where it still has 220 stores. Earlier this year, the retailer issued its latest profit warning, which led to the departure of chief executive Simon Calder. Shortly afterwards the company was forced to renegotiate its stretched finances. Destination Maternity runs 1,906 stores in North America. It claims to be the world’s biggest seller of maternity wear but its attempts to expand outside the US have been limited.

It intends to revive Mothercare’s 220 UK stores with own products. Mr Krell talked of a “halo effect” — by luring in shoppers earlier in their pregnancy.

Alan Parker, the Mothercare chairman, said the US company’s offer was too low and its proposals did not “reflect the inherent value of Mothercare to our shareholders or its prospects for recovery and growth”.

The response now puts huge pressure on Destination Maternity to increase its 300p a share offer or walk away. The Takeover Panel has given it until July 30 to make its next move or back off.

If the bid fails then it cannot return with a fresh offer for another six months. Shareholders also pointed to the strength of Mothercare’s vast international operation, which has 1,200 stores and where profits have leapt from £9.6m to £45m in the past six years, in contrast to the loss-making UK business.

“Mothercare has a great overseas business. We think the stock market has had it very wrong on Mothercare shares,” Mr Gergel said.

On Friday, shares in the retailer closed at 254.5p, giving it a stock market value of £226m.