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Jay McIntosh

Tempur-Pedic to buy Sealy

LEXINGTON, Ky. - Tempur-Pedic said last week it has agreed to acquire Sealy in a blockbuster deal that will create a $2.7 billion global bedding provider.
     The deal unites a fast growing producer of viscoelastic foam mattresses in Tempur with what until last year had been the largest U.S. producer of innerspring beds in Sealy.
     Tempur-Pedic said it will pay $2.20 per share for Sealy, and assume or repay all of the company's outstanding debt. That brings the total value of the transaction to about $1.3 billion.
     The offer price represents a premium of approximately 23% above 30-day average closing price on Sept. 26, but only a 3% premium over the Sept. 26 closing price of $2.14.
     Tempur-Pedic said it has the written consent of 51% of Sealy shareholders for the deal, and that the boards of both companies have approved it. Sealy's largest shareholder, an affiliate of the investment banking firm Kohlberg Kravis Roberts & Co. that owns 44.5% of its shares, is among those who have OKed the transaction.
     The deal is expected to close in the first half of 2013.
     "This is a transformational deal that brings together two great companies, each with globally recognized brands," said Tempur-Pedic CEO Mark Sarvary.
     "Tempur-Pedic and Sealy together will have products for almost every consumer preference and price point, distribution through all key channels, in-house expertise on most key bedding technologies, and a world-class research and development team. In addition, our global footprint will span over 80 countries. The shared knowhow and improved efficiencies of the combined company will result in tremendous value for our consumers, retailers and shareholders," Sarvary said.
     Tempur-Pedic, which is based in Lexington, and Sealy, based in Archdale, N.C., will operate independently, the companies said in a statement. Sealy CEO Larry Rogers will report to Sarvary.
     Rogers, who had announced months ago that he would retire when a replacement was found, said he "will have to put those plans aside" in light of the acquisition.
     "The complementary product and market fit of these two companies deliver a unique opportunity to create the first full spectrum, global bedding company that addresses all market segments and consumer preferences," Rogers said in the statement. "Together, we believe that we can deliver more value than either business could on its own by leveraging our strong combined assets."
     Tempur-Pedic said the deal is expected to be accretive, with a positive effect on its earnings, in its first full year of operations, and that annual cost synergies of the combined companies will exceed $40 million by the third year.
     The companies said that together, they had combined pro forma, adjusted earnings before interest, taxes, depreciation and amortization of $504 million in the 12 months ended June 30 for Tempur-Pedic and May 27 for Sealy.
     "The combined companies will have strong cash flow characteristics that will enable rapid debt reduction and continued investment growth initiatives," officials said.
     Tempur-Pedic said it has received $1.77 billion in loan commitments from Bank of America and Merrill Lynch to finance the deal and provide ongoing working capital.

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