Tempur Sealy International, the world’s largest mattress supplier and maker, has struck a deal to sell nearly 180 Mattress Firm and Sleep Outfitters stores to address antitrust concerns raised by federal regulators who want to block its proposed $4 billion acquisition of those retailers.
Lexington, Kentucky-based Tempur Sealy on Monday said it had entered into an agreement with Mattress Warehouse, an independently owned bedding retailer, for the sale of 73 Mattress Firm stores and the Sleep Outfitters chain, which includes 103 stores and seven distribution centers. In total, 176 stores will be sold to Mattress Warehouse, a multibranded retailer headquartered in Frederick, Maryland, that features a full array of mattresses at various price points.
"As part of our engagement with the [Federal Trade Commission] on the proposed acquisition of Mattress Firm, we conducted a divestiture process, which led to an agreement with Mattress Warehouse, a company with extensive mattress retail experience, a strong capital base, and a capable leadership team," Tempur Sealy Chairman, President and CEO Scott Thompson said in a statement.
The company declined to identify the Mattress Firm stores that are slated to be divested. But Tempur Sealy said it will end up with over 2,800 stores. It acquired is Sleep Outfitters subsidiary in April 2019.
In May last year, Tempur Sealy announced it was buying Houston-based Mattress Firm, the biggest U.S. mattress retailer, with roughly $2.7 billion in cash and $1.3 billion in stock consideration. At that time, Tempur Sealy said the merging of the companies will complement its "extensive product development and manufacturing capabilities with vertically integrated retail."
The deal aimed to help both companies bolster their business after the onset of the COVID-19 pandemic. People in lockdown at their homes during the pandemic's peak purchased goods to make their dwellings more comfortable, including buying new bedding. But that shopping slowed down because Americans had already made their big-ticket purchases and consumers impacted by high inflation were prioritizing spending on necessities.
'Kneecap' rivals
But the Federal Trade Commission came down hard on the proposed sale in July, voting 5-0 to challenge it. The agency issued an administrative complaint and authorized a lawsuit in federal court to block the acquisition, alleging that it would give Tempur Sealy the ability and incentive to suppress competition and raise prices for mattresses for millions of consumers once it acquires Mattress Firm.
The commission charged that the proposed vertical acquisition would merge Tempur Sealy’s manufacturing and supply operations with Mattress Firm’s vast retail footprint, giving the combined company great power in the mattress supply chain.
“Through emails, presentations, and other deal documents, Tempur Sealy has made it abundantly clear that its acquisition of Mattress Firm is intended to kneecap competitors and dominate the market,” Henry Liu, director of the FTC’s Bureau of Competition, said in a statement in July. “This deal isn’t about creating efficiencies; it’s about crippling the competition, which would raise prices on an essential good and could lead to layoffs for good-paying American manufacturing jobs in nearly a dozen states.”
Tempur Sealy could cut or limit the access of their rival mattress suppliers — such as Serta Simmons Bedding and Purple Innovation — to Mattress Firm’s stores, the FTC charged.
The acquisition would enable Tempur Sealy’s mattress brands, including Stearns & Foster and Tempur-Pedic, to dominate the market, according to the regulatory agency.
The FTC is also opposing two other retail mergers. Court hearings concluded last week on the agency's bid to halt grocery-store giant Kroger from acquiring Albertsons Co. for $24.6 billion. The FTC also just went to court to try to block Tapestry — the owner of Coach, Kate Spade and Stuart Weitzman — from purchasing Capri Holdings — home to Michael Kors, Versace and Jimmy Choo — for $8.5 billion.
November hearing
Hearings on the FTC's federal suit to block the acquisition are slated to kick off Nov. 12 and are expected to last two weeks. In advance of those proceedings, Tempur Sealy appears to be trying to allay some of the FTC's concerns.
After the Mattress Firm transaction and store divestiture, Tempur Sealy expects to operate over 2,800 retail locations worldwide and anticipates that half of its North American sales will come from the Mattress Firm operations. Tempur Sealy expects to realize annual run-rate synergies of $100 million by the end of year four after closing the Mattress Firm deal.
Tempur Sealy said it will continue to supply its Tempur-Pedic, Stearns & Foster, and Sealy products to the divested Mattress Firm and Sleep Outfitters stores. The divestiture is subject to the closing of Tempur Sealy's acquisition of Mattress Firm and is expected to close about quarter after the closing of the Mattress Firm transaction.
Tempur Sealy said it believes that "a successful litigation process" can be completed in the coming months, which would allow the transaction to close in late 2024 or early 2025.
"With our proven track record of growth and operational excellence, we are confident in the successful integration of these new locations into our expanding portfolio," Mattress Warehouse CEO Bill Papettas said in a statement. "This acquisition not only strengthens our market position but also enhances opportunities for our team members, vendor partners, and, most importantly, our customers, helping them live better lives through quality sleep."
Tempur Sealy on Monday also announced the sale of up to $1.6 billion in debt to fund the cash consideration for the Mattress Firm acquisition.