Tempur-Pedic to buy rival Sealy as specialty bed dominance slips

LEXINGTON, Ky., Thu Sep 27, 2012 – Tempur-Pedic International Inc. will acquire rival mattress maker Sealy Corp. for about $242 million and assume about $750 million in debt, as rivals snip away at its once-dominant position in specialty beds.

Tempur Pedic, which pioneered the specialty beds market with foam-based technology developed by NASA, is attempting to regain market share from fast-moving rivals that are also chasing the burgeoning market for foam mattresses, popular with aging baby boomers.

The offer price of $2.20 per share represents a 3 percent premium to Sealy’s Wednesday close of $2.14. Sealy shares were trading above the offer price at $2.22 in pre-market trade on Thursday, indicating that some investors expect a higher offer.

Tempur-Pedic shares were up 8 percent at $28.98.

Tempur-Pedic said it had received consent from shareholders holding about 51 percent of Sealy, the long-time market leader. It said no other shareholder approvals are needed to complete the deal.

Private equity firm Kohlberg Kravis and Roberts & Co. owns about 44 percent of Sealy, a remnant of its $1.5 billion deal in 2004 to take the company private.

Earlier this year, Sealy’s second-largest shareholder, H Partners, launched an attack on KKR, accusing it of wiping out 90 percent of the mattress maker’s value, saddling it with debt, and milking it for fees.

Tempur-Pedic said it has secured $1.77 billion in financing from Bank of America for the deal and to pay down existing Sealy and Tempur-Pedic debt. Tempur-Pedic had long-term debt of $680 million as of June 30.

Merrill Lynch will act as lead arranger and bookrunning manager for the debt.

After the deal, Tempur-Pedic and Sealy will continue to operate independently and Sealy EO Larry Rogers will remain CEO of Sealy and report to Mark Sarvary, Tempur-Pedic’s CEO.

Sealy loses perch as rivals tap into Baby Boomers’ health fears

TRINITY, N.C., Fri May 11, 2012 – More than a hundred years ago, U.S. mattress maker Sealy Corp. launched an advertising campaign with the line, “Sleeping on a Sealy is like sleeping on a cloud.”

That line and several mattress innovations helped make Sealy the No. 1 U.S. mattress brand, a position it has held for decades.

However, the company is now in danger of being toppled, as it struggles to tap the surging demand for specialty beds that are wooing aging Baby Boomers with claims of their health benefits.

Sealy’s sales have barely budged since 2009, while new products backed by catchy marketing and an improving economy have fueled explosive growth at Tempur-Pedic International Inc. and Select Comfort Corp., which specialize in foam-based and adjustable-air mattresses.

“You have the ubiquitous advertising of Tempur-Pedic and Select Comfort and others, and consumers believe that the foam mattress is the solution to what ails them,” said Barrie Brown, a consultant and former CEO of retailer Mattress Giant, recently acquired by bigger rival Mattress Firm Holding Corp.

Companies that make the more traditional beds containing coil springs have tried to jump on to the specialty train, but while Serta and Simmons – both owned by Ares Management LLC and Ontario Teachers’ Pension Plan – have released successful products, Sealy has fallen behind.

An external spokeswoman for Sealy, Gemma Hart, said that the company has a long-term goal of controlling 20 percent of the U.S. specialty market, and was “pleased” with the retailer and consumer feedback it received for its new gel-foam based Optimum line after distribution began late April.

Mattress maker Sealy comes out in support of shareholder KKR

NEW YORK, Fri Mar 23, 2012 – Sealy Corp. on Friday defended private equity firm KKR & Co. LP, its largest shareholder, against a hedge fund’s allegations of mismanagement and conflicts of interest that have led to the mattress maker losing 90 percent of its market value.

In a letter to Sealy earlier this month, H Partners Management LLC, which has a 14.5 percent stake in the company, took aim at KKR, not just over its management decisions but also over the conduct of Capstone, KKR’s branded team of consultants.

On Friday, Sealy published a letter sent by Gary Morin, chairman of its nominating and governance committee, to H Partners to address the hedge fund’s demands and rebut its claims.

“We continue to be open to constructive suggestions from shareholders that are in the long-term interest of the company,” Morin wrote.

“However, we do not believe that your combative and public discourse is constructive as we seek the ideal candidate to lead our business and work to improve the company’s performance for the benefit of all our shareholders.”

Sealy, which was started by cotton gin builder Daniel Haynes in the late 19th century, was taken public by KKR two years after its acquisition from another private equity firm, Bain Capital LLC, for $1.5 billion, in 2004.

Since an initial public offering in 2006, Sealy shareholders have collectively seen equity value reduced by $1.3 billion, or about 90 percent.

Capstone has so far been eager to advertise its work on Sealy, featuring words of praise on KKR’s website from Sealy Chief Executive Lawrence J. Rogers, who is set to retire this year once a successor for the troubled company is found.