There's some serious consolidation taking place in the bedding industry.
Tempur-Pedic (TPX) announced on Thursday that it will be acquiring rival Sealy (ZZ) by cashing out shareholders to the tune of $2.20 a share.
The offer isn't much of a premium to Sealy's Wednesday close of $2.14, but it's pretty much a done deal. Tempur-Pedic has already secured consent from investors accounting for a 51% stake in Sealy, including a private equity firm that owns 44% of the company.
Tempur-Pedic will only need to shell out $242 million for the iconic mattress maker, but it also has to assume roughly $750 million of debt.
Tempur-Pedic shares soared on the news, and that's not something you see every day. Usually the buyer sees its stock take a hit, but Tempur-Pedic isn't paying much of a premium for Sealy.
Perhaps more importantly, Tempur-Pedic is acquiring a company that was starting to give it some competition on the high end of the market.
Tempur-Pedic's form-fitting foam mattresses aren't cheap, and traditional box spring mattress makers are trying to cash in on the premium bedding market. Tempur-Pedic's stock shed nearly half of its value in a single day back in June after dramatically hosing down its outlook. It warned at the time that sales would decline by 3% to 5% for the year, and that profitability would fall well short of what analysts were expecting.
Industry fears were eased a month later when Select Comfort (SCSS) -- the company behind the air-chambered Sleep Number Bed -- posted blowout quarterly results. But that didn't forgive Tempur-Pedic's own shortcomings.
Retailers Are Also Pairing Up
Snapping up a competitor is typically smart, and it only helps that the higher end Sealy Posturepedic Optimum gel memory foam mattresses may have been eating into Tempur-Pedic's own business.
The deal may not be great news for consumers if they wind up having to pay more for premium bedding with fewer players around, but the remaining companies will naturally stand to benefit from the deal.
This isn't the first acquisition in the mattress space. Retailers are consolidating too. Fresh off of last year's IPO, Mattress Firm (MFRM) has been taking advantage of its publicly traded status to gobble up smaller rivals and regional specialists.
Did somebody say pillow fight?
Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Tempur-Pedic International. Motley Fool newsletter services have recommended buying shares of Select Comfort.
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