Why Mattress Firm may give Steinhoff sleepless nights

Why Mattress Firm may give Steinhoff sleepless nights

Mattress Firm Holding Corp. investors can sleep easy: Steinhoff International has agreed to pay a knockout 29 times forward earnings for the acquisitive U.S. retailer’s stock. But the secretive South African group’s shareholders have cause to lie awake at night

They might wonder what kind of scale benefits justify a price more than double what public shareholders were prepared to pay for Mattress Firm. Most deals trumpet so-called synergies—costs that might be shared between bidder and target. The word didn’t feature once in a presentation to analysts.

Steinhoff may find gains in the supply chain: The company started as a manufacturing and logistics operation, only moving into retail in 2005. It makes beds in the U.K., France, South Africa and Australia.


But buying Mattress Firm seems to be more about planting a flag in the U.S. than sharing costs. Following the deal Steinhoff will generate about 20 % of sales in greenbacks, calculates brokerage RBC. These will act as a hedge against sourcing costs, which are typically linked to dollar-priced commodities. They will also reduce Steinhoff’s African exposure from over one-third to roughly one-quarter of sales.

The diversification rationale makes more sense for Steinhoff’s dominant shareholder, South African billionaire Christo Wiese, than for other investors, who could buy U.S. exposure without paying a takeover premium. The question of Mattress Firm’s recent poor performance—same-store sales fell 6.1 % in the most recent quarter after a spate of acquisitions, most notably that of Sleepy’s—also remains unanswered.

Steinhoff shares rose on Monday, when the deal was announced. That reaction looks hasty. Investors may be sleepwalking into problems.


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