On Monday, Stifel has downgraded the stock of Sleep Country Canada Holdings Inc. (ZZZ:CN) from Buy to Hold, while raising the price target to Cdn$35.00 from Cdn$31.00. The adjustment follows the announcement of a friendly takeover agreement with a subsidiary of Fairfax Financial Holdings (OTC:FRFHF) Limited (TSX: FFH), which is set to purchase Sleep Country at a price of Cdn$35.00 per share.
The acquisition, with a total value of Cdn$1.7 billion, is backed by Sleep Country's Board of Directors and management team. It is based on a valuation multiple of 8.9 times the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) of the trailing twelve months.
Sleep Country's EBITDA for the past year is reported at Cdn$194 million, which is considered below the normal range of Cdn$215-225 million.
Stifel noted that the offered purchase price is somewhat lower than expected, considering the depressed EBITDA. Still, the firm anticipates that shareholders will likely approve the deal due to the slim chances of alternative bids and the assurance of value realization. This expectation has led to the increase in the price target and the change to a Hold rating for Sleep Country's stock.
The report also includes a correction from Stifel, stating that a previous version contained an incorrect rating in the Financial Summary on the front page, which has now been rectified.
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