๐Ÿ”’ Steinhoff’s $4bn US buy Mattress Firm is bust, gets $925m bailout

By Alec Hoggย 

There have been so many bad news announcements from Steinhoff that it would be easy for shareholders to miss ‘the biggest one of them all, released via SENS this afternoon.

But I’m astonished to see that some traders are actually interpreting the information positively, punting the shares 13c (6%) higher to 248c,ย Maybe they expected even worse, although that’s hard to imagine.

Mattress Firm, the company which former Steinhoff CEO Markus Jooste paid $3.8 billion for in August 2016, is bust. It was the biggest US acquisition ever by a South African company, one that required paying a premium of more than 100% on the market price. And in just 25 months, it has all ended in tears.

For the updated chart and more data on Steinhoff from wsj.com click on the graph.

If ever there was a testament to hubris this is it. But such was his aura at the time, Jooste even convinced his usually astute mentor and Steinhoff chairman Christo Wiese to pledge his existing Steinhoff shares to borrow $1.5bn to help pay for what must rank as the worst acquisition by any South African company ever.

That was a decision which ended up costing Wiese a staggering $4.5bn – all the shares he got from injecting Pepkor into Steinhoff, plus the new shares bought with the loan to effectively pay his share in Mattress Firm.

Steinhoff announced this afternoon that Mattress Firm has officially entered Chapter 11. This is a US law designed to protect teetering firms from creditors, giving the company time to stave off an existential crisis.

Mattress Firm is only beating bankruptcy because it already owes so much money to lenders that they have agreed to lend the company yet another $925m that it needs to stay afloat.

But those loans come at a huge price. Although no interest rates are disclosed in the announcement, that hardly matters next to the news that the banks will now own 49.9% of Mattress Firm – an equity stake for which they will pay nothing. In other words, an asset which Jooste valued at $1.9bn two years ago is being given away for free to the banks as a “thank you” for them agreeing to extend additional loans which will need to be repaid in future.

The details are as follows:

* Lenders will advance fresh loans of $925m to Mattress firm as per:

– a three month loan of $250m against the security of a debtor book
– a facility of $125m secured by assets.
– a four year loan of $400m
– a five year “payment in kind” loan (meaning what?) of $150m

* In return, lenders will receive 49.9% of Mattress Firm’s equity at no cost.

* A management incentive plan will be put in place presumably to retain executives.

* For the $3.8bn they paid in August 2016, Steinhoff shareholders will now own 50.1% of a now worthless and deeply indebted loss-making company that could take years to work its way out of the hole it is in.