Shares of parent company of Mattress Firm plunge 80% on announcement of accounting irregularities

On 6 December, Steinhoff International, the South African parent company owner of Houston-based Mattress Firm, announced that the audited financials would be delayed due to accounting irregularities. The company also announced that PwC would be performing an independent investigation and that CEO, Markus Jooste, had resigned with immediate effect.

The following day, the company announced that the valuation and recoverability of up to $7 billion in assets is in question. The company has also appointed US investment bank, Moelis and Co to advise the company on talks with its lenders and has asked management consultancy firm, AlixPartners to assist on liquidity management and operational measures.

Steinhoff, based in Stellenbosch, South Africa and primarily listed on the Frankfurt Stock Exchange bought Mattress Firm for $2.4 billion in September 2016.  The company, which also owns Poundland in the UK (also bought in September 2016 for £587 million) and Conforama in France, has nearly 6,000 stores in 30 countries. 3,500 of these are Mattress Firm stores! Since the announcement, the share price has plunged over 80%, leading to a loss of nearly $12 billion in market value, due to the sparse information that has been given publicly.

So far there has been no evidence that the accounting at or for Mattress Firm is part of the investigation. One investment firm, Viceroy Research, has accused Steinhoff of disposing unprofitable assets to third parties when in fact they were related companies owned by some of its former executives and other close associates. Viceroy alleges the disposals were often financed by loans from Steinhoff, the interest from which Steinhoff booked as revenue.

Back in August, German prosecutors announced that they were investigating the company and four senior executives (including the just-resigned CEO) for accounting fraud.  It’s not clear why it took 4 months for the share price to be impacted.

Steinhoff has stated it is looking to sell assets worth at least €1 billion ($1.18 billion) though its total exposure to banks and other creditors was €18 billion at the end of March, its last available interim results. The company may be forced to sell Mattress Firm.

In case you are wondering how a mattress store stays in business, the following article was published in the general news section of the Houston Chronicle in August 2016 and shows how employees cope with only 1 or 2 customers a day. No wonder there have been lots of internet start-ups in this space!

The aching loneliness of the Houston mattress salesman – Houston Chronicle



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