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Equity firms bid for Sleep Country Canada

Offer valued at C$356 million or C$22 per unit

Michael J. Knell -- Furniture Today, August 14, 2008

TORONTO — Two Canadian private equity firms are bidding to buy Sleep Country Canada Income Fund in what is described as a friendly takeover bid. Birch Hill Equity Partners Management Inc. and Westerkirk Capital Inc. have offered C$22 per unit cash, valuing the deal at approximately C$356 million.

Christine Magee, company president and advertising spokesperson, and Stephen Gunn, chairman and CEO, said they have agreed to stay with the fast growing sleep specialist and will retain equity positions in Sleep Country.

“We are proud of the team that has been built over the last 14 years and are excited to be leading them into the next phase of the company’s growth and development supported by a great set of financial partners,” Magee and Gunn said in a joint statement.

Birch Hill and Westerkirk have established a new acquisition company — 7019416 Canada Inc. — which will mail the bid documents to current unit holders of the fund on or before Aug. 18. The transaction is expected to be completed by Sept. 23.

The $22 per cash offer is a 37.1% premium over the closing price of the units on Wednesday. According to a joint statement issued by the funds and Sleep Country, it also is a 36.8% premium over the weighted average price of the units over the past 20 trading days.

Sleep Country Canada Income Fund is the largest retailer of mattresses in Canada with 133 corporate-owned stores under the Sleep Country Canada banner and 27 Dormez-vous Sleep Centre stores in Quebec. It also owns Sleep America, the largest mattress retailer in Arizona with 46 stores.

An independent committee formed by the fund’s board of trustees has unanimously recommended unit holders tender to the offer.

“The offer reflects a significant premium and a strong value for unit holders as well as providing an excellent liquidity opportunity that the board of trustees fully and enthusiastically supports,” said Scott Anderson, chair of the independent committee.

“We look forward to working with Sleep Country Canada’s management to continue to grow the business,” said Steve Dent, managing partner of Birch Hill.

Funds managed by Birch Hill already hold just over 1.3 million units of the fund, representing 9.6% of the outstanding units. Gunn also serves on Westerkirk’s investment advisory committee.

However, unit holders have the right to reject the offer if they choose. The offer is conditional on the tendering of two-thirds of the outstanding units. If it fails, Birch Hill and Westerkirk are entitled to a termination fee of C$7.75 million.

The fund said it will continue to pay regular monthly distributions of 12.1 cents per unit until the acquisition is complete.

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Sleep Country gets bid

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