Tempur-Pedic International, the high-end mattress maker, will acquire rival Sealy in a transaction valued at $1.3bn, including debt, a deal that will create the US industry’s largest bedding company.
Sealy was taken public by private equity owners KKR in 2006 with a market capitalisation of $1.45bn. Since then, Sealy’s shares have plunged 90 per cent.
Tempur-Pedic will pay $2.20 per share for its rival, a 3 per cent premium to Wednesday’s closing price, giving the company a market capitalisation of about $242m.
Tempur-Pedic investors applauded the deal, with the company’s share price soaring 18 per cent in midday trading. Together, the companies will have combined revenues of about $2.7bn.
“This broadens Tempur’s current product offering and could provide additional avenues of revenue growth through new geographies and access to new channels,” said Barclays analyst Jessica Cohen.
Yet Sealy, which makes traditional spring mattresses, has been losing share to companies like Tempur-Pedic, which make foam units. “We also recognise that innerspring mattress growth has lagged specialty over the past few years,” Ms Cohen said.
Tempur-Pedic mattresses use technology developed by Nasa, the US space agency. Sales have improved, sending its share price up nearly 1,000 per cent in three years. But poor guidance earlier this year knocked more than half off Tempur-Pedic’s market value.
Sealy came under pressure from its second-largest shareholder earlier this year as H Partners Management, which owns 15 per cent, called for a board shake up, accusing KKR of mismanaging Sealy, loading it up with too much debt and extracting excessive fees.
KKR, which owns 46 per cent of the company, did not comment on the sale. But a person familiar with the firm’s investment said that overall, it was solidly profitable, and noted that Sealy continued to expand through the recession, even as competitors filed for bankruptcy.
The deal was approved by both companies’ boards and needs no additional shareholder approval.
“This is a transformational deal that brings together two great companies, each with globally recognised brands,” said Tempur-Pedic chief executive Mark Sarvary. “Tempur-Pedic and Sealy together will have products for almost every consumer preference and price point.”
The two companies will operate independently, with Larry Rogers, Sealy chief executive, staying on and reporting to Mr Sarvary.
The bedding business has been unusually active in recent months. Mattress Firm bought Mattress Giant in May, and then Mattress Xpress last month.
In August, Advent International, a private equity firm, outbid Bain Capital and Berkshire Partners for AOT Bedding, the maker of Serta and Simmons mattresses, in a deal valued at about $3bn.
“We believe trends in the mattress industry remain favourable, and the new combined company should have the opportunity to benefit,” said Ms Cohen. She cited data from the International Sleep Products Association showing that bedding industry sales were up 15 per cent from the previous year.
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