Destination Maternity (DEST) is the latest U.S. company hoping to jump on the tax inversion bandwagon.
There has been a spate of inversions lately as U.S. corporations seek to use M&A with foreign companies to lower their tax rates by moving their headquarters overseas to friendlier tax locales. Last month, Medtronic (MDT) announced a $42.9 billion merger with Ireland’s Covidien, and much of the deal’s rationale had to do with giving the medical device manufacturer an Irish address. Walgreen (WAG) last week admitted it was considering relocating its home office to Switzerland if it exercises its option to buy the remain 55% of European drugstore chain Alliance Boots that it doesn’t already owned, a move that could drastically lower its bill from Uncle Sam.
Destination Maternity, which operates 578 of its own stores in North America along with 1,328 spaces in department stores, disclosed on Wednesday that it has made two non-binding written proposals to buy Mothercare, a struggling UK retailer specializing in items for expectant mothers and general merchandise for children, the latest of which was valued at about $453 million. Both offers were rejected by Mothercare’s board, and Destination Maternity in a statement on Wednesday announcing its offers said Mothercare “has refused to engage” in talks.
Destination Maternity CEO Ed Krell said there is “a compelling strategic rationale” for combining the two companies. For example, Mothercare could sell Destination Maternity’s popular brands in its UK stores, and allow Destination Maternity to use Mothercare’s excess retail space.
But for Destination Maternity, one of the biggest advantages of the deal likely has to do with how it would structure the deal: under its most recent overture to Mothercare, made on June 1, the merger would call for the creation of a new UK holding company that would be listed on a U.S. exchange, a move likely to lower its taxes.