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South African company to acquire Mattress Firm for $2.4 billion

August 8, 2016

Steinhoff International Holdings NV’s European acquisition spree swept across the Atlantic Ocean as the South African retailer agreed to buy Mattress Firm Holding Corp. for about $2.4 billion, sending the U.S. company’s shares soaring.

Mattress Firm has at least 23 stores in the Indianapolis-area market, according to the company's website.

The deal takes Steinhoff into America for the first time, giving it about 25 percent of the country’s retail market for specialty mattresses, according to RBC Europe. The enlarged company will be the world’s largest bed retailer, including chains such as France’s Conforama and Britain’s Bensons for Beds.

To gain the 3,500-store business, Steinhoff is paying more than double Mattress Firm’s last closing stock price, a valuation that may “raise some eyebrows,” according to Exane BNP Paribas analysts. Mattress Firm shares rose 114 percent, to $63.70 each, in Monday morning trading, erasing a 52 percent drop in the year through Friday.

The price “leaves investors needing to believe in Steinhoff’s ability to improve organic performance—something the company has a good track record of through previous M&A,” Exane analyst Graham Renwick said in a note.

By targeting Mattress Firm, Steinhoff is gaining the only U.S. mattress manufacturer with a nationwide supply chain. The acquisition will expand the company’s footing in a product category that’s growing at about 5 percent a year, according to RBC. The takeover also serves to meet Steinhoff’s ambition of lessening its exposure to Africa.

About 20 percent of company revenue will come from the U.S., with Europe contributing 44 percent and Africa 27 percent, RBC estimates.

Steinhoff offered $64 a share in cash, compared with Friday’s $29.74 closing price for Houston-based Mattress Firm. Steinhoff said it intends to finance the deal through a combination of bank and bridge loans.

Steinhoff shares rose 1.7 percent, giving the company a market value of $25.6 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 CEO, said in the written statement.

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 its 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 $794 million.

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