Shares in Neil Woodford-backed Eve Sleep (EVE:AIM) were suspended at 4.9p this morning as the online mattress maker confirmed press speculation that a merger with rival Simba is on the cards.
Talks are at an early-stage and striking a deal cannot be guaranteed but it could be a useful way for Eve Sleep to increase its own buying power and strip out duplicated costs.
The loss-making mattress retailer has struggled amid muted spending on ‘big ticket’ purchases and fierce competition, including from new market entrant Amazon.
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In today’s update direct to consumer sleep wellness brand Eve confirmed it is in ‘very early stage discussions’ over a merger which may be structured as a reverse takeover under the AIM rules, with Eve acquiring Simba.
If the deal goes ahead, it will require the publication of an admission document as well as the shareholder nod at a general meeting.
However, the eve branded mattresses, pillows and duvets designer is ‘not currently in a position to comply with the requirements of AIM Rule 14 insofar as publication of an admission document and convening of a general meeting are concerned as discussions are at a very early stage and due diligence has not been completed.’
In accordance with the AIM rules, Eve Sleep has therefore requested a temporary share suspension until it either publishes an admission document, calls off bid talks or concludes the deal is not a reverse takeover.
AN INVESTMENT NIGHTMARE
Eve Sleep floated on AIM in May 2017 at 101p, valuing the business at £140m, but the shares have since cratered following an expansion push that failed to generate hoped-for sales growth, led to losses and triggered the departures of chief executive officer (CEO) and co-founder Jas Bagniewski and other key managers.
In January of this year, new CEO James Sturrock successfully tapped investors for £12m to support his strategic refocus on the UK, Ireland and France, core sleep markets collectively worth some £6bn per annum.
SOFTER MARKET CONDITIONS
In a recent first half trading update, Eve Sleep reported a halving of its first half underlying earnings before interest, taxation, depreciation and amortisation (EBITDA) loss to £5.9m loss thanks to a refocus on just three markets, greater marketing efficiency and overhead reductions.
Eve Sleep also announced new partnerships with Argos, Dunelm (DNLM) and Homebase to sell its products through their online sites.
Disappointingly however, the company also warned full year sales would be ‘slightly below previous guidance’ owing to ‘softer than expected market conditions’ in the first half.
As for private company Simba, founded in 2015 by James Cox, Andrew McClements and Steve Reid, it was forced to slash its valuation from £200m to £20m in February to secure new funds.
Commenting on the possible merger, broker Shore Capital said: ‘Not too much restful peace at Eve Sleep, a stock that has sunk like a stone over the last couple of years. Following recent press speculation, the group has announced that it is in “very early” discussions as to a potential merger with Simba, currently its rival.
‘Aside from the potential success or otherwise of the transaction, we shall watch with interest to see if an increasingly interventionist Competition & Markets Authority takes an interest in this potential transaction in due course. Equally, it is also fair to say that both Eve and Simba are now in-play for those awake to the virtues or otherwise of each venture.’
