Mothercare share price shattered by administration news
Shares in baby goods retailer Mothercare (MTC) crashed to a 20-month low of 8.38p on 4 November after its UK operations were put into administration.
Unlike most administration situations, Mothercare’s shares continue to trade as it still has a profitable overseas operation and the administration does not affect the entire business. Traditionally an administration situation would normally see shares in the listed company suspended and then delisted.
Cash-strapped Mothercare insists the administration process marks ‘a necessary step in the restructuring and refinancing of the group’. The UK stores will close over the coming months.
Mothercare has concluded the UK retail operations consisting of 79 stores are ‘not capable of returning to a level of structural profitability and returns that are sustainable for the group as it currently stands’.
Competition from supermarkets and cheaper online rivals, rising costs and years of under-investment in its online offering has ultimately damaged Mothercare. It actually spurned a 300p per share takeover bid five years ago from US peer Destination Maternity on the basis that the offer undervalued the business and its ‘attractive prospects’.
Shares in Mothercare rebounded by 2.6% to 8.6p the day after the UK operations’ administration news, perhaps as some investors took a punt on the remaining business being worth more than the current £29m market value.