Mothercare, the maternity, babies’ and children’s goods retailer, is mulling an £85 million bid for the owner of Early Learning Centre (ELC) and Daisy and Tom, in a move to build a childrens’ products powerhouse.

Mothercare said that it was in talks over a possible acquisition of Chelsea Stores, which has been put on the block by its owner Tim Waterstone, founder of the eponymous bookshop chain, and its private equity backers.

A sale could net a windfall of £13 million for Mr Waterstone, who owns 15 per cent of Chelsea Stores.

The rest of the company is held by DC Thomson, the publisher of The Beano, and Rhone Capital, the American private equity firm that backed the £64 million buyout of the company in 2004 from 3i.

3i had bought ELC from John Menzies in 2001 for £21 million.

Daisy and Tom, the children's department stores company, was founded by Mr Waterstone in 1992. The entrepreneur was recently forced to close two key Daisy and Tom stores – in Bluewater and Manchester's Deansgate – after the costs of running them became prohibitive.

The company has said its flagship store in Chelsea, West London, is “enormously profitable”, as is its outlet at the Dundrum Centre in Dublin.

The acquisition of Daisy and Tom and ELC, which specialises in selling educational toys and books for children up to the age of six, would mark the first major deal for Mothercare since it emerged last year from a three-year plan to restore its fortunes.

Mothercare, which has 527 outlets across the world, is now targeting growth from a push into new markets such as India and Indonesia.

The acquisition of ELC, which is planning its own international expansion, would increase the size of Mothercare by a third from its current market capitalisation of £263 million.

The retailer showed the benefits of its recovery with profits of £21.9 million last year, up from the losses of £20 million seen in 2003 when distribution problems hit its sales.

ELC, which has 215 stores in the UK, is set to move into several new markets this year, including China, India, South Africa, Eastern Europe and Ukraine.

It follows a push into Russia last year and the company is also looking to open a store in Kiev in Ukraine.

ELC trebled its profits to £9.9 million last year from £3.5 million the previous year, with like-for-like sales in December last year up 9 per cent on a strong performance from its 185 international stores and the internet.

Sales at its UK stores remained flat.

Mr Waterstone could not be reached for comment.

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