In a $229 million deal, two mattress companies have merged. The two mattress companies are Sealy Corporation (ZZ) and Temper-Pedic International (TPX). The result of this business transaction combines the two largest mattress companies and reflected approval of the market as shares of both company’s stock closed higher at the end of the trading day.
The specifics of the business reflected Temper-Pedic International buying Sealy Corporation at $2.20 per share. This price per share represents a value of 2.8% more than the closing value per share of Sealy’s at the end of days trading.
The terms of the deal provide for Temper-Pedic to financially cover the debt of Sealy. This total debt is estimated to be at $1.3 billion.
Historically, both mattress manufacturing companies have a long sales and financial history. Temper-Pedic, founded in 1992, is headquartered in Lexington, Kentucky and is the originating company of memory foam mattresses. Financially, Temper-Pedic out distanced other mattress companies as sales last year rose by 28% to a level of $1.42 billion. In 2011, Temper-Pedic achieved financial notoriety by being the largest manufacturer of mattresses with shares being publicly traded.
Sealy has been in business for over 131 years. Last year revenues for Sealy were reported to be $1.23 billion. At this level of revenue they dropped to number two in the industry and also saw their shares of stock plunge in value by more than 90%. This drop in the level of value is over a period of time since 2006 when they began to offer their shares publicly.
Adding to the impetus of Temper-Pedic acquiring Sealy was the reality of lethargic sales. Specifically, revenue from the sales of mattresses produced by Temper-Pedic had fallen by 60% in the value of shares.
The approval for the sale was not without controversy. This is due to the fact that the second largest shareholder, H Partners Management LLC, had objected to the sale. H Partners owns 17% of Sealy’s stock.
H Partners Management LLC has indicated that legal action may be pending. This controversy has been ongoing as H Partners and FPR Partners, the third largest shareholder, has criticized Sealy for poor management which included poor strategy choices and acquiring excessive debt.
The response from Sealy’s Board of Directors was that the majority of stockholders had been approached. The result being that approval for the business deal to go through had been achieved.
For Sealy, value per share of stock reached its pinnacle at $17.90 in April of 2007. Following this peak in value came the recession and Sealy never fully recovered to previous highs.
Following this news of the buyout, the value of Sealy rose by 2.3% to close at $2.19. Temper Pedic, upon this news, rose in value by 14% to a level of $30.64 per share. This value is at its highest since April 2009.
The business transaction announced is expected to be fully culminated in the first half of the year 2013. It is anticipated that this buyout will provide a cost savings to Temper-Pedic at a $40 million level by the third year into the business transaction.
In addition to the cost savings anticipated by Temper-Pedic, it is anticipated that sales will increase. This increase in sales is expected to be realized by offering product that would be classified as mid-priced.