Tempur Sealy International Inc. is forking over $4 billion to acquire Mattress Firm Group Inc.
Tempur Sealy said on Tuesday that the cash and stock deal, subject to customary closing conditions that include regulatory approval, is expected to close in the second half of 2024.
“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 EPS growth,” said Scott Thompson, Tempur Sealy’s chairman and CEO. “Consistent with our M&A strategy, this acquisition will make Tempur Sealy more competitive by bringing us closer to consumers and facilitating continued innovation.”
Once combined, the new larger company will offer product development and manufacturing capabilities with vertically integrated retail. In addition, the combined global footprint will include 3,000 retail stores, 30 e-commerce platforms, 71 manufacturing facilities, and four state-of-the-art R&D facilities—with over 21,000 employees and a presence in over 100 countries.
“This combination will accelerate our growth trajectory and enhance operating cash flow. Mattress Firm has been a valued retail partner for more than 35 years, and we look forward to welcoming their talented workforce of more than 8,100 employees to the Tempur Sealy family,” Thompson said.
“As part of Tempur Sealy, our customers will benefit from our combined portfolio of highly recognized brands and products, extensive omni-channel capabilities, industry leading innovation and best-in-class teams. Under Tempur Sealy’s leadership, our combined company will be in a unique position to take advantage of our shared values and complementary capabilities to better address consumers’ needs and drive growth,” Mattress Firm CEO John Eck said.
Tempur Sealy said the combined company expects to see six strategic benefits after two years. It expects to produce $100 million in new efficiencies in about four years.
The company believes the deal will give it greater insight into consumer preferences and will enhance its omnichannel evolution by merging Mattress Firm’s brick-and-mortar stores with Tempur Sealy’s direct-to-consumer operations. This will also streamline the customer journey and enhance customer service. The merger is also expected to unlock new product innovation, create a leaner supply chain and support financial value.
Logistics, transportation, warehousing, supply chain planning, sourcing and product development all stand to benefit, driving a better end-to-end customer experience, according to the company.
The transaction includes $2.7 billion in cash, and $1.3 billion in stock, based on the $37.62 closing price of Tempur Sealy stock on May 8. Once the deal closes, Mattress Firm and Tempur Sealy’s shareholders will own 16.6 percent and 83.4 percent of the combined company, respectively. In addition, two Mattress Firm directors will join the Tempur Sealy board. The boards of both firms have agreed to the merger and the transaction does not require Tempur Sealy shareholder approval.
Mattress Firm earlier this year withdrew plans for an initial public offering. The bedding retailer was taken private in 2016 by Steinhoff International for $3.8 billion. It filed for bankruptcy in 2018, and emerged one month later after closing nearly 700 locations in its reorganization.
But now its parent firm Steinhoff is working hard to stave off a bankruptcy of its own. Steinhoff earlier this month updated a debt restructuring plan with creditors that is set for a shareholder vote on May 10. Its holdings include a 45 percent stake Mattress Firm in the U.S. and a 79 percent holding in apparel retail Pepco in Europe. Steinhoff has been exploring strategic options for Mattress Firm since last October.
The mattress sector and home category have been struggling. Purple Innovation in March posted a revenue drop in the fourth quarter of 22.1 percent, and reported losses that widened to $70.2 million. And last month, Serta Simmons said it will close three factories after filing for Chapter 11 bankruptcy.
The struggles in bedding and the hard-hit home sector appear to be continuing with no end in sight following the bankruptcy of Bed Bath & Beyond and bankrupt Tuesday Morning shutting down.
On Tuesday, Tempur Sealy reported first quarter earnings showing a 34.7 percent drop in net income to $85.3 million on a 2.5 percent decline in net sales to $1.21 billion. Thompson said the company expects that second-quarter consolidated sales “will return to growth year-over-year, supported by the strong reception to our newly launched products [and] encouraging order trends quarter to date.”
North American sales, which fell 1.3 percent to $919.6 million, was impacted by macroeconomic pressures affecting U.S. consumer behavior. International sales, which decreased 6.4 percent to $288.5 million, was primarily driven by unfavorable foreign exchange, Tempur Sealy said.
Tempur Sealy reaffirmed guidance for an adjusted EPS range of $2.60 to $2.80 for full year 2023.