Mothercare has agreed the sale of its Early Learning Centre (ELC) brand to the owner of The Entertainer toy shop chain for up to £13.5m.

The struggling retailer, which was forced to strike a rescue deal with creditors as part of restructuring and refinancing last year, said the proposed disposal would bolster its ambition to be free of bank debt by the end of this year.

Mothercare said it did the deal with TEAL Brands because it did not have “the necessary capital, resources or scale” to continue to invest and develop own‑brand ELC toys.

The company told investors £6m would be received on completion of the deal, with up to £5.5m in respect of inventory – stock – due within a few months of completion and a further £2m in so-called earn out fees over the next two years.

It added that it would continue to hold approximately £6m of stock for sale in the short term and retain an “arm’s length” concession deal with The Entertainer for the supply of toys to its stores, where ELC trade from, and online.

Shares rose 5% in early deals.

Mothercare said its transformation plans, aimed at cutting costs, were on track with the business due to trade from only 80 stores in its core UK market by the end of this month.

It had 137 last May when it secured a Company Voluntary Arrangement to avert collapse and trading has remained tough since.

ELC operates within all Mothercare shops in the UK, in 400 stores internationally via franchise partners and online.

Chief executive Mark Newton-Jones said: “This disposal of Early Learning Centre provides a further step towards eliminating our bank debt, and our new concession arrangements with The Entertainer will bring our customers an even stronger toys offer, both in stores and online.

“We look forward to working with the team at The Entertainer in the years to come.”

The Entertainer said the acquisition would build on its growth since the collapse of Toys R Us.

Founder and executive chairman, Gary Grant, said: “We are delighted to add ELC to The Entertainer family.

“It comes with a rich history as a much-loved British brand, supporting parents and grandparents with their children’s early years’ learning, development and play.

“We will look to bring new life to the product offering whilst maintaining the high level of quality ELC is renowned for.”

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