Storehouse in pounds 62m stores deal

Storehouse, the Mothercare and BhS retailer, made its first acquisition since the era of Sir Terence Conran yesterday, paying Boots pounds 62.5m for Childrens World, its loss-making out-of-town store chain.

There are 56 branches of Childrens World - but the business has made only one marginal profit since Boots first launched the concept nine years ago. Last year it made an operating profit of pounds 500,000 on sales of pounds 105m but has since slumped back into loss.

Storehouse will change the name to Mothercare and gradually expand the range of toys and equipment such as prams as well as bulk buys of disposable nappies. Five more stores are due to open this year. "We think we can make a lot of money out of it," the company said.

Storehouse plans to reduce costs by pounds 5m which will include some job losses at the Childrens World head office in Nottingham which employs 137 staff. Storehouse will make a provision of pounds 20m to cover the redundancies and other integration costs.

It is likely that Mothercare may resume its "Mothercare goes up to 10" offer in the out of town stores as there is more space to stock a wider range. Mothercare dropped the older ranges some time ago and has been concentrating on clothes for children up to age seven.

There are 269 branches of Mothercare in the UK almost all on the high street. However, the company has recently opened three stores on out of town retail parks - at Fosse Park, Leicestershire, Cheshunt, Herts and Chelmsford in Essex.

Keith Edelman, chief executive of Storehouse, said: "The purchase of Childrens World enables us to speed up the pace of development and gives us out-of-town opportunities."

The deal was applauded in the City which could see benefits on both sides. Sean Eddie, retail analysts at NatWest Securities said. "It is one of those rare birds where everyone is a winner. It is earnings enhancing on both sides."

Boots has removed a long-running dud from its portfoilio and achieved a better-than-expected price. Storehouse has picked up a chain of 50 good out- of-town sites which is a rare opportunity given current planning restrictions on out of town stores.

The deal gives Boots the opportunity to concentrate on its core business. However the company has still to come to grips with other under-performers. Do It All, the DIY chain is still losing money and is unlikely to attract a buyer. Fads and Homestyle are also struggling.

Boots shares closed 5p higher at 594p. Storehouse also finished 5p up at 310p.