Dive Brief:
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Tempur Sealy, facing a Federal Trade Commission challenge to its proposed $4 billion merger with retailer Mattress Firm, has agreed to sell its Sleep Outfitters subsidiary and a portion of Mattress Firm’s footprint, per financial filings Monday.
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Subject to approval of the Tempur Sealy-Mattress Firm deal, MW SO Holdings Company, also known as Mattress Warehouse, will acquire 73 Mattress Firm locations plus Sleep Outfitters’ 103 specialty mattress retail locations and seven distribution centers.
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Hearings on the FTC’s challenge are scheduled to begin Nov. 12 and expected to last two weeks. Tempur Sealy expects them to wrap up “in the coming months, which would allow the deal to close in late 2024 or early 2025,” as expected, per the filing.
Dive Insight:
According to a statement from Tempur Sealy CEO Scott Thompson, this move comes out of discussions with regulators and is part of the company’s effort to move its acquisition of Mattress Firm forward.
However, it’s not clear how much its deal with Mattress Warehouse would alter regulators’ argument that a Tempur Sealy-Mattress Firm merger would bestow “enormous power at multiple parts of the mattress supply chain” to the combined company and enable it “to suppress competition and raise prices for mattresses for millions of consumers.”
The FTC declined to comment.
As of July, according to documents filed in the FTC’s case, Mattress Firm ran about 2,300 brick-and-mortar stores, and Tempur Sealy owned about 99 Tempur-Pedic and 109 Sleep Outfitters stores. If and when these proposed deals close, Tempur Sealy expects to run more than 2,800 stores globally and derive half of its North American sales from Mattress Firm, per its Monday filing.
Mattress Firm had closed some 700 locations by the time it exited its 2018 bankruptcy and since then has closed a few hundred more. Despite what is still a substantial footprint and its self-description as “largest mattress specialty retailer in the U.S.,” the retailer in its July legal filing said it “denies that its retail footprint ‘dwarfs’ that of all other mattress specialty retailers and furniture stores” or that “its stores are ‘ubiquitous.’”
Mattress Warehouse, with more than 320 stores, states that it is the second-largest retailer in the space.
Along with the brick-and-mortar divestiture plan, Tempur Sealy on Monday announced a proposed senior secured term loan in an aggregate principal amount of up to $1.6 billion, which will mature in seven years. The term loan, cash available and other debt would fund the proposed Mattress Firm acquisition, per the filing.
S&P Ratings analysts gave the proposed debt a preliminary BBB- rating, noting that the deal may not go through. They also put “both tranches of [Tempur Sealy’s] unsecured notes on CreditWatch with negative implications, reflecting that we may lower our rating on this debt up to one notch to 'BB-' from 'BB' and revise the recovery rating to '5' from '3' if the transaction closes. The potential lower ratings on the notes reflect the substantial increase in senior secured debt under this transaction, revising recovery outcomes for unsecured debtholders.”
