Takeovers: Morrison’s Disastrous Investment in Kiddicare

If you are looking for a good recent example of how takeovers can destroy returns for shareholders (of the investing business), then add Morrison’s purchase of Kiddicare to the list!

Back in February 2011, grocery giant Morrison’s made its first entry into online retailing by paying £70 million to acquire Kiddicare - a leading baby products retailer.

At the time, investment analysts were reported to have concluded that “the acquisition was sensible but "not exactly cheap". How right they were proved to be.

Just three years later, Morrison’s sold Kiddicare to a specialist private equity company (Endless) for just £2m, with the grocery retailer also left with substantial ongoing liabilities for shop leases and other commitments it had made as it tried to grow the Kiddicare business under its control. The total cost of the disastrous takeover for Morrison’s shareholders? Approximately £160m.

Little is known about why Kiddicare failed so spectacularly for Morrison’s. I suspect the answer lies in poor due diligence (the process of investigating a potential takeover target before agreeing to the purchase) and even worse post-takeover integration management. Morrison’s knew next to nothing about online retailing - they admitted as much when they first announced the Kiddicare investment - and this proved very costly!

This article in Retail Week provides some further background on Kiddicare and, interestingly, asked four "experts" what they would do in order to revive the performance of Kiddicare now that it has been sold by Morrison's.

Morrison's shareholders, I suspect, will just be pleased to have let go...