South African retailer Steinhoff International will buy Mattress Firm, the largest specialty bedding retailer in the United States, for $3.8 billion which includes debt, both companies said on Sunday. Steinhoff said it will pay $64 per share, a premium of about 115 percent to Mattress Firm's Friday close in a deal that will create the world's largest mattress retail distribution company. The boards of both firms have approved the deal, the companies said in a statement. Shares of Mattress Firm ended the day 114 percent higher at $63.75 a share Monday. The stock has a short position of 36.7 percent of shares available for trading, according to FactSet. Blue chips typically average single-digit levels of such bets their share price will decline. Founded in 1986, Mattress Firm has approximately 3,500 stores across 48 states with 80 distribution centers. In February, the company solidified its position as a leader in the U.S. mattress retail market when it completed its $780 million acquisition of HMK Mattress, the holding company of Sleepy's.
Sleepy's was the second-largest specialty mattress retailer in the U.S. with over 1,050 stores in 17 states in the Northeast, New England, the Mid-Atlantic and Illinois. The deal with Steinhoff is subject to completion of a successful tender offer for Mattress Firm's shares. The transaction is expected to close in the third quarter of 2016, the companies said. Steinhoff is a German-listed $22 billion furniture conglomerate led by South African retail mogul Christo Wiese who is also Steinhoff's chairman and largest shareholder. Steinhoff, which owns brands in Africa, Australia, the U.K. and across Europe, last month agreed to pay nearly $800 million for British-based discount chain Poundland after two previous attempts to expand in Europe fell through this year. The Mattress Firm Holding deal would give Steinhoff access to the growing U.S. market, and help diversify its operations and guard against possible repercussions following Britain's June vote to leave the European Union.
Markus Jooste, chief executive officer of Steinhoff, said the deal "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." Linklaters acted as legal counsel to Steinhoff. Barclays was financial advisor to Mattress Firm with Ropes & Gray acting as legal counsel.A good night's sleep can make a world of difference, and all it starts with the right mattress. Sleepy’s is here to help. We stock a massive range of matressses online, including gel mattresses, latex mattresses, pocket spring mattresses and zoned mattresses. Every mattress is quality assured and Australian made, giving you the best sleep experience possible. The type of mattress you select is extremely important – it can impact on the amount of partner disturbance you experience, it can create or prevent tossing and turning, and it can affect your depth of sleep.
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This is my NextShortly after Melissa Marik moved into a new apartment in February, a Mattress Firm store moved in a block or two away from Marik — and from another Mattress Firm. "I never even see anyone in the stores," said Marik, 27, who was walking down a mile stretch of Clybourn Avenue in the Lincoln Park neighborhood that boasts five Mattress Firms, two American Mattresses and a Sleep Number.Even the CEO of Mattress Firm, Ken Murphy, agrees Chicago probably has a few too many — but there's a method behind what some may see as the madness of mattress stores seemingly on every corner. In its best markets, Houston-based Mattress Firm aims to have a store for about every 50,000 people. That means Murphy would eventually like to have roughly only 200 in the Chicago area. Today, there are 235.Some duplicative or unprofitable stores will be closing but not right away. Mattress Firm is reviewing its real estate footprint with an eye to trimming stores but hasn't yet decided how many or which stores to shut down, according to the company's first-quarter financial report.
Most closures will come as store leases end, Murphy said.Even 200 is a lot of stores specializing in a product that for many customers is a once-in-a-decade purchase."Car dealers come closest, but there are no other retail chains that focus on big-ticket discretionary products with that many stores," said Wedbush Securities analyst Seth Basham. Roughly 9,000 specialty bed and mattress stores in the U.S. generated about $11.5 billion in revenue in 2015, according to a report last year from market research firm IbisWorld.So why are there so many? In Chicago, the answer has a lot to do with Mattress Firm's push to grow through acquisitions.Mattress Firm, the U.S.'s largest specialty mattress retailer, got into the Chicago mattress market about two years ago when it acquired Back to Bed and Bedding Experts. It bought another competitor, Sleepy's, last year and finished rebranding those stores by July 4."While in many respects it's been a great opportunity to get as populated in the market as quickly as we have, the downside is we have real duplication of stores right on top of one another," Murphy said.
It still has competition from other specialty mattress chains, including Sleep Number and Addison-based American Mattress, in addition to furniture stores and big-box retailers that sell mattresses.Furniture stores and department stores used to be the only places to buy a mattress, said Jerry Epperson, a furniture and mattress industry analyst with Mann, Armistead & Epperson. But manufacturers, which wanted to encourage people to replace their mattresses even if they weren't buying a new set of bedroom furniture, started promoting the idea of dedicated mattress stores, and they've been spreading rapidly since the 1990s, he said.Industry analysts' take on whether the U.S. has too many mattress stores depends on how well they think generalist brick-and-mortar retailers and online mattress startups will fare against traditional mattress specialists.But Murphy said there's "a logic to the apparent madness" of the store-on-every-corner approach.A new mattress — expensive and nonessential — was an easy purchase to delay during the recession, which has likely led to some pent-up demand, said Rice University marketing professor Utpal Dholakia, who got interested in the mattress business when a British student wondered why every American strip mall seems to have its own mattress store.
Industry analysts also say a spate of bedbug infestations may have prompted at least a few extra sales.Mattresses are a relatively high-margin product, and stores don't need that many employees, meaning each location doesn't need to sell a huge number of mattresses to break even, industry analysts said. And every store does double duty as advertising — important for a product most people don't think about until they need it."We want prominent, convenient, high-profile locations our customers will be driving or walking past anyways so that when they do get in the market, we're the natural default option," Murphy said.He thinks there's room for more Mattress Firm stores, albeit not in Chicago. The company had 3,472 as of May 3, and he thinks it could support about 4,500 across the U.S.Mattress Firm is trying to be the first truly national brand in the mattress space in hopes that scale will give it more leverage over vendors, more efficient operations and better name recognition.But analyst Basham said he's on the fence about how big a boost national scale will provide amid growing competition.