Dive Brief:

• Tempur Sealy and Mattress Firm on Tuesday asked a federal judge in Texas to issue a preliminary injunction to halt a Federal Trade Commission court proceeding set to start Tuesday. The FTC is trying to block Tempur Sealy’s $4 billion acquisition of Mattress Firm on grounds that it would create a mattress monopoly.
• In the document, Tempur Sealy and Mattress firm asked a federal judge to move up the hearing date for the companies’ injunction request. Doing so would keep the companies from litigating the federal court case and the FTC’s administrative hearing, which is currently set to start Dec. 4.
• On Thursday, Tempur Sealy  reported total Q3 net sales of $1.3 billion, a nearly 2% rise from $1.27 billion a year earlier. The company’s North American net sales were flat, but its international business segment rose 12.4% t. Net income rose 14.7% to $130 million from $113.3 million year over year.

Dive Insight:

Tempur Sealy sees its acquisition of Mattress Firm as integral to its long-term growth and preventing the deal from moving forward would cause both companies substantial financial harm, they said in court documents.

The FTC sued Tempur Sealy in July to block the deal. Tempur Sealy, in turn, sued the FTC in October, seeking to block the agency’s administrative proceedings that could derail the acquisition.

Tempur Sealy’s most recently filed complaint against the FTC asks a judge to block the FTC challenge of the Mattress Firm merger through its own separate administrative proceeding in addition to a federal court proceeding, a move that would effectively offer “the FTC two shots at us by using two different courts,” CEO Scott Thompson said during an earnings call.

Last month, Tempur Sealy said it successfully closed on a $1.6 billion term loan. It plans to use the loan proceeds, along with cash available and proceeds from other debt, to fund the cash consideration for its acquisition of Mattress Firm.

But the FTC sees the potential union as a violation of antitrust law. In their latest legal challenge, Mattress Firm and Tempur Sealy say the FTC’s ability to draft and resolve its own administrative charges — the outcome of which must be appealed to the same organization that first brought the complaint — is a conflict of interest. 

In its court challenge, the FTC said Mattress Firm “is the single most important retail channel for mattress brands. It can drive massive volumes of sales through its unmatched consumer reach, and mattress brands jostle to access its floor space. Allowing Tempur Sealy to buy Mattress Firm would upend this competitive dynamic, giving Tempur Sealy enormous sway over the fate of its rivals.”

To assuage regulators’ concerns that the merger would inhibit competition in the business segment, Tempur Sealy in September agreed to divest about 175 stores to rival retailer Mattress Warehouse. That agreement, reached in concert with the FTC, is contingent on closing the Mattress Firm deal, Thompson said.

While the legal issues play out, Tempur Sealy’s third quarter results slightly beat top and bottom line consensus expectations, Wedbush analysts led by Seth Basham said in a Thursday note. 

Tempur Sealy narrowed its fiscal year guidance. It now anticipates 2024 sales will be slightly lower than the prior year. The analysts also noted that the company’s Q3’s gross margin of 46.2% was worse than the consensus forecast of 46.8% and below the firm’s 46.9% estimate.

“[Tempur Sealy] likely resorted to additional promotions to drive sales that were ineffective in this soft demand environment,” Wedbush wrote in its statement. “[The company] resorted to more aggressive cost cutting to meet EPS expectations, which we view as lower quality earnings.”