South African retail giant Steinhoff International Holdings announced Sunday that it would acquire mattress retailer Mattress Firm Holding (MFRM) in a deal valued at $3.8 billion to add presence in the United States.
Under the terms of the deal, Steinhoff will pay $64 per Mattress Firm share, or $2.4 billion, a 115% premium over Mattress Firm's closing price of $29.74 on Friday. Including net debt, the transaction is valued at $3.8 billion.
Mattress Firm is the largest specialty mattress retailer in the United States. In February, the Houston-based company completed its $780 million acquisition of rival HMK Mattress Holdings, the parent of the Sleepy's and Mattress Discounters brands. However, its shares have fallen about 20% over the past three months as the company warned of potential losses stemming from rebranding the newly acquired stores.
"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," CEO Markus Jooste said in a statement.
Steinhoff said in a statement that the transaction would create the world's largest multibrand mattress retail distribution network.
Frankfurt-listed Steinhoff has lately been acquisitive, announcing plans last month to acquire British discount retailer Poundland Group for £597 million ($790 million) after losing bidding wars for two other European retailers.
Although based in South Africa, with a secondary listing on the Johannesburg Stock Exchange, Steinhoff generates the bulk of its revenues and profits in Europe and has transitioned away from manufacturing toward retailing.
Steinhoff already has a large presence in mattresses and bedding. According to an analyst presentation, it is the largest bed retailer in the UK, the largest mattress distributor in France and the largest bedding distributor in South Africa, with significant manufacturing capabilities in the UK, Europe and South Africa.
Mattress Firm, according to the same presentation, has a 25% market share among mattress specialty retailers in the United States, with projected fiscal 2016 sales of $3.8 billion.
After the close of the acquisition, the combined group will have pro forma sales of €17 billion ($18.8 billion), operating profit of €1.6 billion and pro forma Ebitda of €2 billion.
The transaction will significantly alter Steinhoff's currency exposure. Currently, none of Steinhoff's revenues are in U.S. dollars, but following the close U.S. dollars will represent 19.5% of Steinhoff's revenues. The euro will drop to 43.6% from 54.2%, and the volatile South African rand will fall to 27.1% from 33.7%. The pound and the Australian dollar will both fall slightly to 4.3% and 5.5%, respectively.
The acquisition is expected to close by the end of the third quarter and will be funded through bank and bridge loans. Steinhoff said it expects the acquisition to be accretive from its first year. The funding structure consists of a bridge facility of $1.8 billion, a 2-year term loan of $1 billion, a 3-year term loan of $500 million and a 5-year term loan of $500 million.
There is a no-shop provision and Steinhoff is entitled to a breakup fee of 3%, or $72 million.
Steinhoff and Mattress Firm did not respond to requests for comment.