Mattress Firm Holding Corp (NASDAQ:MRFM) is soaring and with it taking many shorts up to heaven or if they have been naughty taking them down. The stock is a big short favorite with about 40 percent of the share held short, and we too recently featured a short write up on the stock from a guest contributor. The stock is up about 115 percent on a massive takeover bid from Steinhoff in a $2.4 billion deal. What are the details? Below is what the sell side is saying.
Mattress Firm Holding Corp
Steinhoff is a vertically integrated, diversified international mass market retailer focused on household goods and general merchandise product categories. The company has €13.7b in LTM revenues, with 73% of operating profit generated from household goods primarily in Europe. The company is the leading mattress retailer or distributor in the UK, France and South Africa and a leading mattress manufacturer in these regions. The acquisition of MFRM will create one of
the world’s largest multi-brand mattress retail distribution networks, giving it increased purchasing power, and facilitate the company’s entry into the US market.
Mattresses and bedding is a core focus area for Steinhoff, although it currently does not operate in the US. MFRM has grown significantly through acquisitions by consolidating the US specialist mattress retail sector. Based on consensus estimates, MFRM will generate turnover of some $3.8bn in 2016, compared with only $434m in 2009. It has 3,594 retail outlets (largely owned) and is the market leader with a market share of some 25% among mattress specialty retailers. The US wholesale bedding market has delivered annual growth of 5% from 1980 to 2015 and the retail sector remains fragmented.
With ~37% of MFRM’s publicly traded float sold short, we think it is possible the stock could overshoot the takeout price in the short run. However, we aren’t expecting another bidder to join the situation. It’s possible that a financial buyer could step in, but] MFRM’s adjusted leverage ratio stands at 6, so it doesn’t offer a lot of financial flexibility. It’s also possible that another strategic buyer could express interest, but we don’t think it’s likely.
More from the press release below
Mattress Firm Holding Corp. (“Mattress Firm” or the “Company”) (NASDAQ: MFRM), the nation’s largest mattress retailer, today announced that the Company and Steinhoff International Holdings N.V. (“Steinhoff”) (FRANKFURT: SNH) have entered into a definitive merger agreement under which Steinhoff will, subject to the successful consummation of a cash tender offer and satisfaction of other customary closing conditions, acquire Mattress Firm for $64.00 per share in cash, which represents a premium of 115% over the Company’s closing stock price of $29.74 on Friday, August 5, 2016. This represents a total equity value of approximately $2.4 billion and an enterprise value of approximately $3.8 billion, including net debt. The merger agreement, which has been unanimously approved by the Mattress Firm board of directors and the management and supervisory boards of Steinhoff, will create the world’s largest multi-brand mattress retail distribution network.
“We remain focused on our long-term strategy to build a national chain under one banner in the U.S. and we will continue activating and unlocking the true power of all of the assets we have assembled to truly become the preferred choice for better sleep.”
Pursuant to the terms of the merger agreement, a wholly owned subsidiary of Steinhoff will commence a tender offer to purchase the outstanding shares of Mattress Firm common stock at a price of $64.00 per share in cash. The acquisition is expected to close by or around the end of the third calendar quarter, subject to regulatory approvals, and satisfaction of a majority tender condition and other customary closing conditions. The transaction is not subject to any financing condition.
At the close of the transaction, Mattress Firm will operate as a subsidiary of Steinhoff from Mattress Firm’s current headquarters in Houston, Texas. Both Steve Stagner, executive chairman and chairman of the board of Mattress Firm, and Ken Murphy, president and CEO of Mattress Firm, will remain in their positions with Mr. Stagner also joining Steinhoff’s executive committee.
“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,” said Mr. Stagner. “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.”
“Today’s announcement marks an exciting new chapter for Mattress Firm that will open up future opportunities for our employees, our customers and our business partners,” said Mr. Murphy. “We remain focused on our long-term strategy to build a national chain under one banner in the U.S. and we will continue activating and unlocking the true power of all of the assets we have assembled to truly become the preferred choice for better sleep.”
Steinhoff is an integrated retailer that manufactures, sources and sells furniture, household goods and clothing in Europe, Africa and Australasia. They operate more than 40 brands in 30 countries. Steinhoff has a primary listing on the Frankfurt Stock Exchange and a secondary listing on the Johannesburg Stock Exchange.
“The boards of Steinhoff and its management team are enthusiastic about the opportunities this transaction creates,” said Markus Jooste, CEO of Steinhoff. “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 recognizes 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.”
- Mattress Firm is the leading mattress retailer in the fragmented U.S. household goods market
- More than 3,500 stores in 48 states with 2015 pro forma sales of $3.5 billion
- Best-in-class distribution network with 75 distribution centers across the U.S.
- Creates the world’s largest multi-brand mattress retail distribution network
- Experienced Mattress Firm management team with a proven track record of integrating acquisitions in the U.S. market
- Strong recurring free cash flow and low maintenance capex needs
- Enhances Steinhoff’s free cash flow generation over time
- Leverages Steinhoff’s global sourcing capabilities with additional economies of scale
- Attractive U.S. market with high disposable consumer income
- Further diversification of Steinhoff’s European and African operations
Barclays acted as exclusive financial advisor to Mattress Firm and provided a fairness opinion to the Company. Ropes & Gray LLP acted as legal counsel to Mattress Firm in connection with the transaction. Linklaters LLP acted as legal counsel to Steinhoff