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Investment guide: Steinhoff Holdings

By Jessica Anne Wood

International furniture, household goods and general merchandise manufacturer and retailer Steinhoff International Holdings is set to acquire Mattress Firm Holding, as US-based bedding retailer. The announcement came on 7 August, with Steinhoff offering $64 (about R872.88) per share in cash for Mattress Firm.

According to Steinhoff, “this represents a total equity value of approximately $2.4 billion (about R32.73 billion) and an enterprise value for Mattress Firm of approximately $3.8 billion (about R51.83 billion) including net debt.”

What the acquisition means

By acquiring Mattress Firm, Steinhoff will create “the world’s largest multi-brand mattress retail distribution network.” This will also mark Steinhoff’s entry into the US market. Mattress Firm allows Steinhoff to make use of the company’s national footprint in the US and represents an attractive investment opportunity for Steinhoff due to its leadership position in the US mattress retail market.

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.”

In addition, Steve Stagner, Mattress Firm executive chairman, notes: “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.”

Investing in Steinhoff

An expert in the banking industry noted that following the announcement of the acquisition, Steinhoff stocks were trading up in Frankfurt, but lower in Johannesburg due to the strong Rand. There has not been much of a change in how the stocks were trading prior to the announcement, as investors wait for more information pertaining to the deal. Due to the hybrid structure of Steinhoff, there are no other companies listed on the Johannesburg Stock Exchange (JSE) that can be compared with it.

When asked if Steinhoff is a good investment, the banking expert said: “Steinhoff struggled for many years to persuade the market that it was a good investment story. Listed way back in 1998, it always provided strong earnings growth but the market had reservations, mainly surrounding its very low tax rate and the observation that it was “a trademark company” with not much substance. Also, very few investors really understood the intrinsics of Steinhoff’s hybrid nature i.e. it is both manufacturer and retailer of furniture and related goods. But in recent times, it has managed to shrug off those concerns and has now attracted a loyal investor following, both locally and offshore.”

The expert added: “Potential investors need to consider the sustainability of Steinhoff’s very low tax rate (less than 20%) and how it will fare in a European Union that will soon lose one of its biggest members i.e. the UK. Investors also need to be assured that Steinhoff’s balance sheet will be able to cope with its huge expansion programme, predominantly based on acquisition.”

 

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