Lexington-based mattress maker Tempur-Pedic International announced Thursday that it will acquire rival Sealy in a deal valued at $1.3 billion.
The deal, expected to close during the first half of 2013, "provides us access to every consumer at every price point at every point of distribution," Tempur-Pedic CEO Mark Sarvary said. "It gives us access in a much broader way."
The companies will continue to operate independently, he said, rather than be combined into a single brand. Larry Rogers will remain as Sealy's CEO and will report to Sarvary.
Tempur-Pedic will pay $2.20 a share for Trinity, N.C.-based Sealy. That's up from a closing per-share price of $2.14 for Sealy on Wednesday. Tempur-Pedic also will assume or repay Sealy's outstanding debt.
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The acquisition brings together companies specializing in different areas of the mattress industry. Tempur-Pedic is recognized as the industry leader for memory foam mattresses and pillows, which it sells in more than 80 countries. Founded in 1881, Sealy is best known for its spring mattresses that are sold under brands including Sealy, Sealy Posturepedic, and Stearns & Foster.
Brad Thomas, an analyst for KeyBanc Capital Markets, praised the acquistiion.
"After many years of dominating the foam niche of the bedding category, the world has changed for Tempur-Pedic," he wrote in a note to investors. "In the past year, inner-spring competitors have greatly improved their foam offerings, taking share from Tempur-Pedic.
"With this transaction, Tempur-Pedic will firmly become a part of the normal mattress world and will no longer be a niche player."
Thomas said that he expects lower growth potential, but that he's "encouraged that Tempur-Pedic understands the changing dynamics of the industry."
As Thomas noted, the acquisition continues Tempur-Pedic's reach into segments of the mattress market that were traditionally outside its premium non-spring products.
Earlier this year, the company introduced its Simplicity mattress line, priced at $1,499, that brought the company into a lower-price portion of the market. Tempur-Pedic also recently unveiled its Weightless line, which emulates the benefits of a spring-like mattress by helping people get in and out of bed easier.
Jon Andersen, an analyst with William Blair & Co., wrote in a research report that Tempur-Pedic was becoming "increasingly disadvantaged" as competitors made inroads into its memory foam segment.
Earlier this year, Tempur-Pedic executives warned that increased competition from rivals would lower its sales projections for the year. The company's stock lost half its value that day but has since recovered somewhat. When the company later announced earnings, it revealed that sales fell 4 percent year over year in the most recent quarter.
"Today's announcement takes Tempur-Pedic in a dramatically new direction," Andersen said in a note to clients.
Sarvary said Tempur-Pedic's most recent products complement the variety of spring mattresses and latex foam mattresses produced by Sealy.
"Between us, we have essentially every type of technology used in the industry, and a plethora of brands," he said.
The purchase of Sealy is the first major acquisition for Tempur-Pedic since its founding in 1992. Chief financial officer Dale Williams said the company's previous acquisitions revolved around small distributors primarily in foreign countries.
The companies will operate independently, but executives said they expect cost savings of more than $40 million annually within three years. Sarvary said no job losses are expected in Lexington as part of the cost savings.
"Frankly," he said, "I think there will be little or none."
The company has nearly finished its new global headquarters in the Coldstream Research Campus on Newtown Pike and expects to move into the new site in mid-October.