Canadian insurance giant Fairfax Financial (TSE:FFH), just under a month ago, made a play to acquire Sleep Country (TSE:ZZZ), the Canadian mattress retailing giant. The usual caveats kicked in soon after, especially in terms of regulators needing to approve the deal. However, that hurdle is now in the rearview, and investors responded accordingly, sending Sleep Country shares up fractionally in Tuesday morning’s trading.
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The Competition Bureau in Canada approved a special meeting that will potentially clear the way for the acquisition to go through. Now, shareholders will vote in September to approve the plan and must do so by a two-thirds margin in order for Fairfax to take possession.
Should that happen, Fairfax will step in to buy all outstanding shares of Sleep Country for $35 per share. That’s a 28% premium over July 19’s closing price, but it represents about a $0.03 discount over the share price today. The deal, which is all-cash, is currently recommended by the board, who unanimously declared it in shareholders’ best interest.
Is Sleep Country a Good Stock to Buy?
Turning to Wall Street, should the deal not go through, analysts have a Moderate Buy consensus rating on TSE:ZZZ stock based on three Buys and three Holds assigned in the past three months, as indicated by the graphic below. After a 54.52% rally in its share price over the past year, the average TSE:ZZZ price target of C$31.08 per share implies 11.28% downside risk.
