Fairfax Financial (TSE:FFH) recently made a move that’s making investors—and a lot of other people—sleep better at night. The financial holding company recently agreed to purchase Sleep Country Canada Holdings (TSE:ZZZ) in a move that sent Sleep Country shares rocketing up nearly 28% in Monday morning’s trading. The move called for Fairfax to offer up about $1.7 billion to pick up the mattress retailer, which, in turn, gives Fairfax both all issued and outstanding common shares for $35 per share.
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With prices just over a week ago coming in the mid-$20s range, that’s a fairly substantial premium.
Fairfax kept comparatively quiet about its plans for Sleep Country, although Sleep Country’s president and CEO, Stewart Schaefer, considered this vindication in terms of “…the value and strength of our brands and organization.”
Interestingly, this acquisition is a little outside of Fairfax’s typical wheelhouse, as it generally handles reinsurance operations as well as property and casualty insurance. Nevertheless, it will soon handle some home furnishings.
But What Do You Do With It?
The idea that Fairfax has any idea of what to do with a mattress retailer seems a bit of a long shot. This is especially true given that Sleep Country isn’t a hundred percent sure itself. A little less than a year ago, it pivoted on its display strategies, trying to better market its products to potential customers with eye-catching displays.
The effectiveness of the move has proven somewhat dubious, as it revealed back in March that it brought in $22.5 million in fourth-quarter sales in an environment packed with “industry challenges.” While revenues were up modestly at the time—about an extra $2.6 million—earnings were slashed nearly in half from $40.5 million to $22.5 million. It remains to be seen how well this quarter went.
Is Fairfax a Good Stock to Buy?
Turning to Wall Street, analysts have a Strong Buy consensus rating on Fairfax stock based on five Buys assigned in the past three months, as indicated by the graphic below. After a 61% rally in its share price over the past year, the average Fairfax price target of C$1,825.13 per share implies 14.09% upside potential.
