Biggest bet by SA company – Steinhoff bids R52bn for 3500 store US retailer

Christo Wiese
Christo Wiese

When Markus Jooste’s Steinhoff concluded South Africa’s biggest ever corporate transaction in 2014 by merging with fellow super entrepreneur Christo Wiese’s Pepkor, we expected fireworks were in the offing. But only those who know the two men intimately would have believed what has transpired since. First came the raising of R18bn in fresh capital with the listing in Frankfurt. Then two successive contested takeover bids for London-listed retail companies. After refusing to go the extra step there because the price had become too rich, Jooste then pounced for the business he really wanted all along, the 450-store UK-business Poundland. Now, before those regulatory processes have run their course, Jooste has made the biggest ever acquisition bid by any South African company with an effective R52bn offer for Houston-based Mattress Firm Holdings. The proposal values the 3 500 store US bedding retailer at $3.8bn, with the per-share offer almost double where its shares traded on Friday but in line with where it was a year ago. The deal would instantly turn Steinhoff into the biggest seller of bedding in the US – and adding similar operations like Conforama in France and Benson For Beds in the UK, the largest on earth. Naysayers are sure to point out the US has been a financial graveyard for a long list of highly rated South African managed companies – from Discovery and Investec through to Old Mutual. But the failures have tended to be in the highly regulated financial services. Retailers like PG’s former global arm Belron, for instance, have done very well in the Home of the Free. And of course there’s always Elon Musk’s example to draw on for inspiration. Jooste and Wiese are also heavily invested in Steinhoff, are determined to play in the top league and have an appealing vertically-integrated global model they can plug acquisitions into. Most of all, Jooste says his due diligence focuses on the people running the business – and says in the dozens of takeovers over a couple decades, only a handful of the top talent at acquired companies has ever left the group. That would suggest Steinhoff’s proposed American adventure may well succeed where others from its country have not. – Alec Hogg

Mattress firm

By Julie Johnsson

(Bloomberg) — Steinhoff International Holdings NV agreed to buy Mattress Firm Holding Corp. for about $2.4 billion, a deal that vaults the South African discount retailer into the U.S. market while creating the world’s largest bedding giant.

Steinhoff offered $64 a share in cash, more than double Friday’s $29.74 closing price for Houston-based Mattress Firm. The acquisition of the largest U.S. specialty mattress retailer included net debt that raised the deal’s enterprise value to about $3.8 billion, the companies said Sunday in a statement. Directors at both companies have approved the takeover, which is expected to be completed by the end of the third quarter.

Steinhoff CEO Markus Jooste
Steinhoff CEO Markus Jooste

The purchase would give Steinhoff a global reach while diversifying sales away from South Africa, its largest market, where the furniture and discount apparel seller is subject to currency swings with the volatile Rand. Steinhoff said it intends to finance the deal for Mattress Firm through a combination of bank and bridge loans.

Shares of Mattress Firm had declined 52 percent in the past year as slumping demand for retail products and discounting weighed on its results. The company had a market capitalization of about $1.11 billion.

“This transaction will allow Steinhoff to not only enter the U.S. 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,” Markus Jooste, Steinhoff’s chief executive officer, said in the statement.

Read also: Markus Jooste – On losing bids building Steinhoff and drawing inspiration.

Mattress Firm announced Nov. 30 that it had agreed to buy rival Sleepy’s for $780 million, combining the two largest mattress sellers in the U.S. into a network of 3,500 stores and 80 distribution centers across 48 states. The deal was completed in February.

The company shuffled chief executives in March as it lowered a sales forecast for the year. Ken Murphy was promoted to the CEO post, replacing Steve Stagner, who remained as Mattress Firm’s chairman.

Steinhoff, which has 2,300 stores, last month announced a deal to buy 900-store U.K. discount chain Poundland Group Plc for 597 million pounds ($794 million).

Rationale

From Steinhoff:

Steinhoff_Logo_Feb_2016Stellenbosch – Steinhoff (FRANKFURT: SNH) and Mattress Firm (NASDAQ: MFRM) today announced that they have entered into a definitive merger agreement under which Steinhoff will, subject to the successful consummation of a cash tender offer, acquire Mattress Firm for $64.00 per share in cash.

This represents a total equity value of approximately $2.4 billion and an enterprise value for Mattress Firm of approximately $3.8 billion including net debt.

The investment in Mattress Firm will create the world’s largest multi-brand mattress retail distribution network and facilitate Steinhoff’s entry into the U.S. Similar to the European retail mattress market, where Steinhoff is a leader, the North American mattress industry has demonstrated long term stability and consistent growth.

Mattress Firm represents an attractive investment proposition to Steinhoff through its national footprint and leadership in the U.S. mattress retail market.

The acquisition price is a premium of 115% to Mattress Firm’s closing price of $29.74 per share at the close of trading on August 5, 2016.

https://twitter.com/EventDrivenMgr/status/762398230776836096

The transaction has been unanimously approved by the board of directors of Mattress Firm and the management and supervisory boards of Steinhoff.

Markus Jooste, CEO of Steinhoff said: “The boards of Steinhoff and its management team are enthusiastic about the opportunities this transaction creates. This transaction will allow Steinhoff to not only enter the U.S. 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 in the many geographies where the group operates.

“Steinhoff recognises the strength of Mattress Firm’s experienced and entrepreneurial management team and its proven track record of delivering growth, profitability and leadership in the U.S. retail mattress market. We look forward to welcoming Mattress Firm employees to be part of the one of the world’s leading multi-format retailers.”

Steve Stagner, Mattress Firm Executive Chairman said: “The Mattress Firm board believes that the transaction provides significant value to our stockholders through the premium to our share price and the immediate liquidity at closing, while giving Mattress Firm an ideal partner with a proven track record in the complete mattress supply chain including the retail and manufacture of mattresses.

“This expertise will complement our diverse selection of products provided by our valuable partners. Steinhoff’s management team shares our vision for the growth and expansion of Mattress Firm and, as such, we believe they are the right long-term partner for our customers, employees, suppliers and other stakeholders.”

Under the terms of the merger agreement, an indirect, wholly owned subsidiary of Steinhoff will commence a cash tender offer to purchase up to all of the outstanding shares of Mattress Firm common stock for $64.00 per share in cash.

The closing of the tender offer is subject to customary closing conditions, including regulatory clearances and a majority tender condition, following which all remaining stockholders of Mattress Firm will be cashed out, with a right to receive the offer price in a merger that will take place as soon as practicable thereafter.

The transaction is expected to close by or around the end of the third calendar quarter. Steinhoff intends to finance the acquisition through a combination of bank and bridge loans. The closing of the transaction is not subject to any financing condition.