Takeovers and Mergers - the failed takeover behind Clinton Cards’ Collapse

The collapse of Clinton Cards has been widely predicted for some time as its new CEO (recruited from Starbucks UK) attempted to achieve a turnaround and restructuring in recent months. Clinton’s administration is one of the biggest UK retail failures wince Woolworths and much of the press analysis will focus on the competitive pressures that the retail chain faced from online operators like Moonpig and Funky Pigeon, as well as the effect of weak consumer confidence and spending.

Eagle-eyed A2 students, however, will also spot that a strategic mistake back in 2004 is at the root of many of Clinton Cards problems. The mistake - buying Birthdays Group in 2004.

Clinton Cards grew rapidly via takeovers (external growth) in the mid 2000’s and the Birthday Group takeover was hugely significant for the group as it added substantial scale to the business and also a second well-established trading brand. The problem? The Birthdays chain was performing badly when it was bought and has been a management headache for Clinton Cards plc ever since.

The Birthday Chain, which has more of a value-proposition (it is a discounter) compared with Clinton Cards, has not made a profit since it was acquired for £50m in 2004. Birthdays has also faced intense competition from Card Factory – which was sold to the private equity firm Charterhouse Capital Partners in a deal worth £350m in April 2010 – has opened many of its 596 shops near to those owned by its listed rival over recent years. Birthdays made a loss of £8.6m in 2010-11.

When you look back at the story of Clinton Cards since the Birthdays takeover, you can find plenty of evidence of how troublesome the acquisition has proved. The takeover distracted senior management, proved very hard to integrate and has drained the group of much needed cash through its heavy losses. Hindsight is a wonderful thing, of course, but few would argue that Clinton Cards significantly overpaid for Birthdays Group and probably shouldn’t have done the deal in the first place! Still, it’s a terrific example for AQA BUSS4 students to use in the M&A essays this summer!

There is some good evidence in theses examples:

31 October 2005
http://news.bbc.co.uk/1/hi/business/4392192.stm

“Shares in Clinton Cards dropped 8% in early Monday trading after it reported that it had fallen into the red. linton blamed the losses on tough High Street trading, and delays to restructuring the Birthdays chain it bought last December. The 488 Birthdays stores accounted for £8m or almost two thirds of the losses.”

27 April 2006
http://news.bbc.co.uk/1/hi/business/4950046.stm

Clinton Cards has reported a sharp drop in profits after struggling to integrate the Birthdays chain it bought in 2004. Clinton said it was installing a new chief at the Birthdays chain, which it bought for £46.4m in December 2004. The Clinton chain saw operating profits fall to £18.4m, while Birthdays stores made a £9.9m loss.

“The… acquisition of the Birthdays chain of stores is compounding what are without doubt the most challenging trading conditions the group has seen in years,” said Keith Bowman, analyst at Hargreaves Lansdown Stockbrokers.

“The real worry is that management have been working so hard at improving trading at the Birthday stores chain - and with some limited success - that they have now taken their eye off the main Clintons business,” he added.

21 May 2009
http://news.bbc.co.uk/1/hi/business/8060868.stm

Retailer Clinton Cards has put its subsidiary chain of 223 Birthdays stores into administration, putting more than 2,000 jobs at risk. The company said the Birthdays outlets would continue to trade while options to secure their future were explored. The news saw Clinton’s shares rise 30%. Clinton said that in the current economic environment it could not sustain Birthdays’ £7m annual losses.

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