WLWHY Woolworths Holdings Ltd (PK)

JOHANNESBURG—Steinhoff International Holdings NV, Africa's retailing giant but little-known outside the continent, has made its first foray into the U.S., agreeing to pay $2.4 billion for Sleepy's owner Mattress Firm Holding Corp.

Steinhoff, a family-owned furniture seller based outside Cape Town, South Africa, is called "Africa's Ikea" for its home furnishing retail chains. Until recently, it had trained its sights on expansion in Europe, from Germany and Switzerland to Poland and Bulgaria, and Australasia. Last month, it agreed to pay £ 597 million ($793.77 million) for British retailer Poundland Group PLC, which sells most of its goods for a pound, or about $1.31 at today's rates.

The company said on Sunday it would push into the U.S. as well, acquiring Mattress Firm for $64 a share in cash. The offer represents a 115% premium to Mattress Firm's closing price Friday of $29.74. Steinhoff described the deal as one that would "create the world's largest multi-brand mattress retail distribution network."

Houston-based Mattress Firm, meanwhile, is the largest U.S. specialty mattress retailer with 3,500 company-operated and franchised stores in 48 states and sells a variety of brands including Tempur-Pedic and Sealy. Founded in 1986, it too has been expanding through acquisitions, including the purchase of rival Sleepy's in February. The expansion has bolstered sales but also resulted in rising costs. Mattress Firm warned in June that it expected a loss for the fiscal year as it moved to rebrand all its stores under the Mattress Firm banner.

Bruno Steinhoff, the Steinhoff family patriarch, started his business selling cheap furniture from West Germany to East Germans in 1964. The fall of the Berlin Wall in 1989 put Mr. Steinhoff in a position to tap a growing consumer class in Eastern Europe.

In 1997, the family acquired a stake in a South African furniture company, listing the combined entity on the Johannesburg Stock Exchange in 1998 under its current name. Steinhoff owns a variety of chains that sell furniture and bedding in countries ranging from Switzerland to Poland.

Steinhoff has since been looking to tap markets further afield. "In South Africa and Africa, our market-share is already quite big. Growth potential in our current product category is a bit capped," said Mariza Nel, director of corporate services at Steinhoff, in an interview before the Mattress Firm deal. "We need the market to grow, or we will need to enter into a new product category."

For the nine months ended March 31, the company—which recently moved its primary stock listing to Frankfurt—posted a 45% increase in revenue to €9.93 billion, while operating profit rose 46% to €1.09 billion.

Many of South Africa's companies have found success tapping developed markets like Australia, rather than tackling developing but difficult ones in Africa, despite the continent's population of more than one billion people. In Nigeria, Africa's largest economy, for example, rents are exorbitant and supply chains tough to maintain.

Upscale South African food and clothing retailer Woolworths Holdings Ltd. closed its three Nigerian stores in late 2013. Months later, it acquired Australian department-store chain David Jones and the remaining minority stake in specialty apparel maker Country Road Group. The company now reaps more than 40% of its revenue from Australasia.

Naspers Ltd., Africa's largest company by market capitalization, catapulted to that position after acquiring an early stake in China's Tencent Holdings Ltd., now an internet giant. Naspers is Tencent's biggest stakeholder, and has investments in internet companies from Argentina to India to Turkey.

Steinhoff isn't leaving Africa. Last year, it bought South African clothing discounter Pepkor Holdings Proprietary Ltd. for 62.8 billion South African rand, about $5.7 billion at the time. The combined entity currently has more than 6,500 stores in 30 countries across Africa, Europe and Australasia. Still, during the six months ended Dec. 31, Africa, excluding South Africa, accounted for less than 2% of Steinhoff's revenue.

Like many multinationals with South African roots, it retains a secondary listing on the Johannesburg Stock Exchange, where it is the eighth biggest company, with a market capitalization of 346.08 billion South African rand ($25.26 billion). Others include mining behemoth Anglo American PLC, luxury-goods giant Cie. Financiè re Richemont SA and SABMiller PLC. Just three of the Johannesburg exchange's 10 largest companies by market cap have primary listings there.

SABMiller's precursor, South African Breweries, moved its headquarters from Johannesburg to the U.K. in 1999 amid a wave of corporate defections. Then as now, a weak currency and limited access to international investors hobbled the country's economy.

Steinhoff's deal with Mattress Firm is expected to close in the third quarter. Linklaters LLP acted as legal counsel to Steinhoff, and Ropes & Gray LLP acted as legal counsel to Mattress Firm. Mattress Firm's financial adviser for the transaction was Barclays.

Write to Alexandra Wexler at alexandra.wexler@wsj.com

(END) Dow Jones Newswires

August 07, 2016 21:35 ET (01:35 GMT)

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