Steinhoff’s Mattress Firm files for bankruptcy and shuts stores
The company expects to complete its restructuring in 45 to 60 days and to get court approval to close as many as 700 stores before year’s end
Steinhoff’s cash-strapped US operation, Mattress Firm, has filed for voluntary bankruptcy as part of a restructuring that will result in up to 20% of its 3,400 stores closing and the sale of 49.9% of the business to funders who are providing $525m to support the restructuring.
The restructuring, which comes just more than two years after Steinhoff paid a hefty $2.4bn for 100% of the largest mattress retailer in the US and took on its $1.4bn debt, includes the repayment of $84m to Steinhoff and its release from loan guarantees to Mattress Firm.
The August 2016 acquisition was given the thumbs up by the market despite the payment of a premium of 115% for the debt-laden mattress retailer.
The deal was the last major transaction by Steinhoff before reports of accounting irregularities in December 2017 led to a 95% slide in its share price within a matter of weeks, wiping more than R190bn off its market capitalisation in what has become one of the largest corporate scandals in SA history.
On Friday, Mattress Firm said it expected to complete its restructuring in 45 to 60 days and to get court approval to close as many as 700 stores before year’s end.
It is hoping the liquidity boost from the bankruptcy and the release from unattractive leases will help it deal with a more competitive market place, which now includes an aggressive internet-based challenge.
Cratos Capital equity analyst Ron Klipin described the restructuring and voluntary bankruptcy as “an elegant solution” that would provide Mattress Firm with funds for daily operations as well as the ability to reduce debt and increase equity.
Klipin said the restructuring gave Mattress Firm its own funding profile and helped to reduce Steinhoff’s debt.
Steinhoff CEO Danie van der Merwe said that the restructuring plan would help Mattress Firm to address the “significant operational challenges” facing management.
“Considering the group’s current position, we believe the Mattress Firm recapitalisation is the best way to support and accelerate the turnaround plan so as to ensure a future for Mattress Firm and its employees, and unlock value for shareholders over time,” Van der Merwe said on Friday.
During his presentation to parliament in September, former CEO Markus Jooste said he had approved of the acquisition, which had been proposed by former Steinhoff CFO Ben la Grange and gave the European and African retail group its first exposure to the US market.
“In retrospect, the American decision was a bad [one],” Jooste told MPs.
Ahead of the Steinhoff acquisition Mattress Firm had been on an aggressive store expansion spree, adding 1,500 stores and lifting its debt to $1.4bn at the time of the deal.
The half-year results released by Steinhoff in July said Mattress Firm had experienced significant near-term operational disruptions and increased costs from the accelerated rebranding of the recently acquired stores.
It also struggled with the termination of the supply agreement with its largest mattress supplier, Tempur Sealy.
The combination of tough trading conditions and steep lease expenses has pushed Mattress Firm’s debt up to $3.2bn.
Steinhoff’s share price gained 6.44% to R2.48 on Friday, its biggest one-day jump in nearly three weeks.
The FTSE/JSE all share index was down 1.33% to 54,409.47.