Mattress Firm’s $2.4 Billion Acquisition Will Destroy Short Sellers

mattressNews broke over the weekend that mattress maker Mattress Firm Holding Corp (NASDAQ:MFRM) would be acquired by “The Ikea of South Africa,” Steinhoff International Holdings NV. The incredible amount of short sellers in MFRM prior to the news will mean a whole lot of pain this morning.

From the Wall Street Journal:

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.

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.

That 115% premium is surprising, given the fact that Mattress Firm has been on a downward slide, recently posting a quarterly loss in Q1. While the company has been growing revenue due to its 2015 acquistion of Sleepy’s for $780 million, it hasn’t yet managed to generate the big profits it had hoped from the deal.

Traders who were short selling MFRM going into today are going to get creamed, and apparently there are a lot of them. According to ShortSqueeze.com, MFRM’s short percent of float is a whopping 45.17%:

MFRM-short-squeeze

It’s very rare to see such a high percentage of the float owned by short sellers. Heavily-shorted stocks tend to be in the 10% to 20% range, and 45% is almost unheard of. Expect some fireworks today as all of those short sellers have to unwind their positions all at once.

Mattress Firm shares rose $33.96 (+114.19%) in premarket trading Monday to $63.70. Prior to the acquisition announcement, MFRM had lost 33% of its value since the start of 2016.

MFRM-2016-08-08

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