Steinhoff taps into US with Mattress Firm merger
INTEGRATED discount retailer Steinhoff International this week entered into a definitive $2.4 billion (R32.8bn) merger agreement with US company Mattress Firm.
The deal will allow Steinhoff to tap into new markets in the US if approved. Mattress Firm has more than 3 500 company operated and franchised stores across 48 states.
Steinhoff said this would create the world’s largest multibrand mattress retail distribution network and it would facilitate Steinhoff’s entry into the US market. Steinhoff offered to pay $64 per share in cash to acquire the firm representing a total equity value of about $2.4bn and an enterprise value for Mattress Firm of about $3.8bn including net debt.
Last month Steinhoff acquired British retailer Poundland Group for £597 million (R11bn). The recent acquisition price is a premium of 115 percent to Mattress Firm’s closing price of $29.74 per share at the close of trading on August 5.
The transaction has been unanimously approved by the board of directors of Mattress Firm and the management and supervisory boards of Steinhoff.
Steinhoff’s chief executive, Markus Jooste, said: “This transaction will allow Steinhoff to not only enter the US market with an industry leading partner and a national supply chain, but it will also expand Steinhoff’s global market reach in the core product category of mattresses. The Mattress Firm brand and speciality retail concept are a strong complement to the Steinhoff group retail brand portfolio.”
Jason Forssman, a fund manager at Ashburton Investments, said: “At face value, the offer price may seem expensive, however, the opportunity to acquire assets with similar distribution channels in the US is rare. Moreover management appear to possess extensive experience and should lend Steinhoff support.”
He added: “We expect Steinhoff to follow their traditional template in terms of acquisitions, refinance the existing debt within (Mattress Firm) and leverage scale benefits off its existing infrastructure.”
Steinhoff said it intended to finance the acquisition through a combination of bank and bridge loans. The closing of the transaction was not subject to any financing condition. Steinhoff has a market capitalisation of about €22bn (R333bn).
It reported revenue and operating profit for nine months to March of €9.9bn and €1.1bn, respectively. Steinhoff’s deal with Mattress Firm is expected to close at the end of the third quarter.
Ian Cruickshanks, an independent analyst, said: “I am very nervous about this deal and it has caught the market by surprise.”
He also lamented the big premium Steinhoff was willing to pay. “It is a very big premium and… shareholders deserve to know why the company is prepared to pay that much to enter the US market.”
Shares rose 0.91 percent on Monday to R89.05.