Retailer Mothercare has accused a US-based firm of launching a £266 million takeover bid for the sake of cutting their Corporation Tax bill. The baby and toddler retailer, who is struggling financially, has rejected two informal offers from Destination Maternity, it emerged recently.
Bosses at Mothercare said that Destination Maternity ‘greatly undervalued’ the company and did not reflect its recovery and growth prospects. However, insiders are claiming that part of the appeal of the takeover was the UK’s low rate of Corporation Tax- currently 20% compared to 38 per cent in the USA. Destination Maternity confirmed that if the deal went through it would create a new holding company in the UK with shares remaining in the US.
Previously, American pharmaceutical company Pfizer planned to use the same tactic with its failed takeover of AstraZeneca. The tactic is known as tax inversion. The chief executive of Destionation Maternity called the tax rate ‘the icing on the cake’. However, he insisted that his company’s heart was in the right place, with the aim of creating a global leader in maternity, baby and children’s products. The deal would create more than £1.45 billion worth of annual sales. Destination said that it would sell some of its products in Mothercare stores, but could not rule out job losses.
The approach from the company comes as Mothercare battles to fight back from a lack of sales because of competition from supermarkets and others. It recently recorded losses of just over £21.5 million. However, overseas Mothercare is doing much better with a joint venture in India.
Mothercare chairman Alan Parker said:[quote]” 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.” [/quote]