Steinhoff's $3.8 billion American dream seen as risky by some

Wed Sep 7, 2016 4:30am EDT
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By Tiisetso Motsoeneng

JOHANNESBURG (Reuters) - As the winner of several big horse races in South Africa, Variety Club's local dominance was never in doubt.

But when its owner Markus Jooste, chief executive of furniture giant Steinhoff SHFJ.J, wanted the colt to go further, he gambled by sending it to Dubai. It paid off: in 2014, Variety Club was named one of the world's top racehorses.

Now, aiming to replace IKEA as the world's biggest furniture retailer, Jooste is venturing into the United States with the $3.8 billion acquisition last month of Houston-based Mattress Firm MFRM.O, to create a global bedding company.

Some investors have told Reuters that crossing the Atlantic may be a step too far for Jooste, while others wonder whether Steinhoff simply wants to get its money out of South Africa. But the fact that Steinhoff managers are involved has offered some reassurance.

Jooste, poised to clinch an $800 million takeover of British discount retailer Poundland PLND.L after he walked away from buying Britain's Home Retail HOME.F and was outbid for French electronics retailer Darty Plc, declined to be interviewed for this article.

"There's a bit of execution risk here because it is in the United States which is an entirely new territory for them," said Adrian Zetler, a portfolio manager at Coronation Fund Managers CMLJ.J, Steinhoff's third largest shareholder.

"This will be the big thing we will need to try and get comfortable with as investors: do they have the depth in their management team to look after a business in an entirely new geography?"

Steinhoff intends to retain Mattress Firm's management team led by chairman Steve Stagner and president Ken Murphy, both of whom have presided over a company whose profit has not grown as fast as its acquisition-fueled debt pile.   Continued...

A sign is seen in a Poundland store in London, Britain, November 10, 2015. REUTERS/Stefan Wermuth/File Photo