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Mothercare is in talks to sell or separate its UK store operations months after striking a deal with creditors that secured the struggling retailer’s survival.

Sky News has learnt that Mothercare has kicked off negotiations with ‎third parties about a sale or franchising agreement for its British shops.

The intention to pursue some form of transaction is expected to be confirmed in a trading update scheduled for Friday morning, sources said.

If completed, a deal would mark a watershed for the UK’s best-known maternity and baby goods chain, which has been struggling to improve its fortunes in a brutal high street environment.

Mothercare traces its roots to its first store in Surrey, which opened in 1961.

Insiders said on Thursday evening that a deal to offload Mothercare’s remaining 79 UK stores, which represent the only national franchise now owned by the company, was not guaranteed.

The trading update will come as the company also secures the support of its lenders to waive covenant tests and defer a number of debt repayment milestones agreed as part of an earlier refinancing.

That consent from Barclays and HSBC is also expected to be confirmed in Friday’s stock exchange announcement.

Mothercare has been steadily transforming itself into an international franchising group, and now trades from roughly 1,000 stores in about 50 countries.

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Last year, it was forced to turn to creditors for support through a process called a company voluntary arrangement (CVA).

That mechanism resulted in the closure of 55 UK shops‎, and has since been followed by the £13.5m sale of the Early Learning Centre, the disposal of its head office and hundreds of job losses.

Mothercare raised £32.5m from investors last year from the sale of new shares, but now has a market value of less than £68m.

To add to the turmoil facing the company, it took the extraordinary step last year of ousting its highly regarded chief executive, Mark Newton-Jones, only to reinstate him less than six weeks later.

The identity of the parties with whom Mothercare is discussing the future of its UK business was unclear on Thursday evening.

Retail insiders said the process was being run by bankers at Numis Securities.

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Clive Whiley, Mothercare’s executive chairman, and Mr Newton-Jones are said to be open to exploring “all options” to maximise value for shareholders.

That could involve an outright sale of the UK business to a turnaround investor or an agreement with a third-party retailer or franchisee to ‎take on the estate.

Mothercare is far from alone in having been forced into radical steps to slash its store portfolio.

Virtually every name on the high street is implementing a restructuring plan of some kind as the shift towards digital channels and growing costs associated with physical stores inflict pain across the sector.

Most notably this year, Debenhams has been through a pre-pack administration, while Sir Philip Green’s Arcadia Group, which owns brands such as Topshop, only narrowly averted insolvency after a recent creditor vote.

In Debenhams’ case, lenders have just been asked for another £50m to help see the department store chain through to the crucial Christmas trading period.

Without a solution to take the financial burden of the struggling UK business ‎off its hands, Mothercare may have no alternative but to put it through another formal restructuring process.

Shares in the company closed on Thursday at 19.25p.

Mothercare declined to comment.

By Mark Kleinman, City editor

Source: Sky News

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