US Mattress Firm gives SA owners sleepless nights

12 May 2019 - 00:10 By TJ STRYDOM

Steinhoff International has lost control of its largest investment in the northern hemisphere, the company said this week.
Mattress Firm, the largest bed retailer in the US, which it bought for $3.8bn (R54bn) less than three years ago, will no longer be accounted for as a subsidiary on its books.
"The management board has considered the shareholding and governance structures of [the US company that owns Mattress Firm] and determined that the group lost control of [it] on November 21 2018," said the company.
After last year's chapter 11 bankruptcy proceedings, the US equivalent of SA's business rescue, Steinhoff held only 50.1% of Mattress Firm as creditors got a stake in the company in return for new financing.
This deal allowed the company to close more than 600 unprofitable stores. It also contained provisions that could dilute Steinhoff's stake even further as it needed to incentivise, with share options, the management team tasked with turning the loss-making bed retailer around.
This has now evidently happened.
"Subsequent to [November 21 2018], Mattress Firm will be accounted for as an equity accounted investment in the group's 2019 annual financial statements," Steinhoff said.
When Steinhoff bought all of the Houston-based company in 2016 it had plans to create the world's largest multi-brand mattress retail distribution network. It also marked the Stellenbosch-based company's first foray into the US.
But that was before a hole was discovered in Steinhoff's accounts and long-time CEO Markus Jooste resigned.
In an effort that spanned nearly a decade, a group of senior executives and some outsiders had inflated Steinhoff's profits by more than R100bn, the company said last month in a summary of a forensic report by PwC.
And the investment in Mattress Firm itself was a costly one. As early as September 2017 it was already clear that the bed retailer was worth much less than Steinhoff International paid for it.
But that was only revealed last month, when Steinhoff flagged that the goodwill and intangible assets on its balance sheet were worth €1.8bn less than previously thought and that most of the impairment was due to its US unit.
The group's financial results revealed this week that Mattress Firm had made an operating loss of €163m in 2017.
"During the reporting period, Mattress Firm reported disappointing results with like-for-like revenue declining by 11% and a large operating profit loss," said Steinhoff.
The bed retailer's poor performance was due to several strategic decisions.
One of these was the aggressive rebranding of 1,300 stores shortly after acquiring Mattress Firm, the company said.
Another was terminating the relationship with Tempur-Sealy, its largest supplier at the time.
The company is not commenting beyond what was published this week because its 2018 results are set to be released in the next few weeks and it is handling this as a closed period.
"At the date of this report, Mattress Firm remains the largest speciality mattress retailer in the US with over 2,500 store locations," the company said.

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