Tempur Sealy International is buying Mattress Firm in a $4 billion deal expected to create a bedding-retail behemoth with roughly 3,000 stores globally, jockeying to be in a better position to drive sales at a time when consumers have cut back on spending.

The Lexington, Kentucky-based buyer on Tuesday said it had signed a definitive agreement for Mattress Firm, the nation's largest mattress specialty retailer, with over 2,300 brick-and-mortar locations and a growing e-commerce business. The sale will be funded by roughly $2.7 billion in cash and $1.3 billion in stock consideration issued to shareholders of the Houston-based Mattress Firm.

The transaction is expected to close in the second half of 2024, according to Tempur Sealy, a leading mattress manufacturer. The company said it had received a request for additional information from the Federal Trade Commission for that agency's review of the transaction and it plans to cooperate. Following the close of the sale, Mattress Firm is expected to operate as a separate business unit within Tempur Sealy.

The deal aims to help both companies bolster their business as the pandemic winds down. People in lockdown at home during the peak of COVID-19 purchased goods to make their dwellings more comfortable, including buying new bedding. Now, three years later, that kind of shopping has slowed down and consumers impacted by high inflation are prioritizing spending on necessities such as groceries. Tempur Sealy has experienced a slowdown in sales, while Mattress Firm earlier this year shelved plans to go public. Steinhoff International owns a stake in privately held Mattress Firm, which filed for bankruptcy protection in 2018 and emerged from the proceedings shortly thereafter.

Following the acquisition, the combined companies will not only have 3,000 stores but 30 e-commerce businesses, 71 manufacturing plants, and four research-and-development facilities.

"This combination will complement Tempur Sealy's extensive product development and manufacturing capabilities with vertically integrated retail," according to the company.

"This transaction advances all four of our key long-term initiatives: to develop the highest quality bedding products, promote brands with compelling marketing, optimize our diverse omnichannel distribution platform, and drive [earnings per share] growth," Tempur Sealy CEO Scott Thompson said in a statement. "Consistent with our [mergers and acquisition] strategy, this acquisition will make Tempur Sealy more competitive by bringing us closer to consumers and facilitating continued innovation."

He also described Mattress Firm as "a valued retail partner for more than 35 years."

Tempur Sealy announced its Mattress Firm deal at the same time it released first-quarter earnings. Total net sales decreased 2.5% to $1.21 billion compared with $1.24 billion in the same year-ago period.

Neil Saunders, managing director of GlobalData, in a note to clients Tuesday, said the Mattress Firm acquisition will "allow Tempur Sealy to expand its distribution and showcase its brand to more consumers."

The deal also comes at a time when traditional sales channels important to Tempur Sealy, like department stores, are under increasing pressure, according to Saunders.

"Tempur Sealy will also hope that Mattress Firm helps them to buck the current slowdown in sales which is being caused by the cost-of-living crisis and many households having upgraded their mattresses during the pandemic," he said. "As valid as all of these reasons are, quite how acquiring Mattress Firm affects the fortunes of Tempur Sealy remains to be seen. The purchase price is high and while Tempur Sealy will extract some synergistic savings it will need to work hard to make the financials work to its advantage."

Saunders also pointed out that the retail environment has become much more competitive for Mattress Firm.

"Mattress Firm does have strong visibility in the bedding market, but it has been disrupted by a raft of specialist new entrants to the market, most of which sell directly to consumers" Saunders said. "It is also facing pressure from the expansion of home players like Ikea, which has a strong bedding business. Some of its stores also look tired and could do with additional investment. For all these reasons, it has gradually lost market share. Resolving these issues will now fall on the shoulders of Tempur Sealy."

With the acquisition and combining with Mattress Firm, Tempur Sealy said it will be able to streamline operations and better manage its supply chain across logistics, transportation, warehousing, sourcing and product development, as well as streamlining the order-to-delivery process for all customers.

Tempur Sealy expects to begin realizing synergies by the end of the second year after closing on the sale and at least $100 million in annual cost savings by the end of year four.

The company's bedding brands include Tempur-Pedic, Sealy and Stearns & Foster, along with nonbranded, private-label offerings.

Saunders said it would be a mistake if Mattress Firm only sold Tempur Sealy bedding after the acquisition closes.

"The store currently sells a variety of brands, so any attempt by Tempur Sealy to prioritize its own brands or curtail the sale of alternatives may alienate some shoppers," he said.

J.P. Morgan Securities is serving as sole financial adviser, and Cleary Gottlieb Steen & Hamilton is serving as legal counsel to Tempur Sealy. Goldman Sachs, Barclays and Jefferies are serving as financial advisers, and Simpson Thacher & Bartlett is serving as legal counsel to Mattress Firm.