Sealy, shareholder still at odds
Jay McIntosh -- Furniture Today, April 2, 2012
ARCHDALE, N.C. - Sealy defended its board members' independence in a letter issued by one of its directors, but disgruntled shareholder H Partners Management responded with more questions about the board's ties to the company's largest shareholder, buyout firm KKR & Co.
In a letter to Sealy's board last week, H Partners Management also demanded that the company disclose and explain its payments to KKR.
H Partners said it doubted an assertion by Sealy director Gary Morin, who is chairman of the board's nominating and governance committee, that certain board members were "independent," saying, "A true independent director takes concrete actions which serve all shareholders, rather than acting as an extension of KKR."
The new letter from H Partners, dated March 27 and signed by Usman Nabi and Arik Ruchim, partners in the firm, repeated the concerns the investors had raised in a March 11 letter and criticized Sealy's response to that letter.
In the response, Morin rejected H Partners' demand for changes on the board. He said that five of its nine directors were classified as "independent" under New York Stock Exchange guidelines, and defended the company's relationship with KKR.
Morin also said that KKR has been a "responsible partner" to Sealy since acquiring a majority stake in 2004. The investment firm helped take the company public in 2006, but retained a 46.2% share.
H Partners, Sealy's second largest shareholder with a 15.3% stake, says that Morin's letter "failed to explain why almost 90% or $1.3 billion of value has disappeared since Sealy's IPO in 2006. It also failed to address the governance deficiencies that we believe will lead to continued failure at Sealy."
Sealy's stock price has declined from $16 at its April 2006 initial public offering to about $2 in trading last week.
The new H Partners letter specifically questions why Sealy made "$9.7 million in payments to KKR for advisory services only two years after paying $11 million to terminate KKR's advisory services."
It also asks whether Sealy has made other undisclosed payments to KKR and its affiliates, and questions payments to independent directors in 2008 and 2009.
H Partners said that if Sealy did not answer its questions and implement the recommendations it made earlier, it would withhold support for Sealy's incumbent directors at the company's upcoming annual meeting, set for April 18. H Partners has not nominated its own slate of directors, however. H Partners was especially critical of Dean Nelson, a Sealy director who heads KKR Capstone, a consulting firm owned by KKR that has done extensive work for Sealy. H Partners said Nelson has a conflict of interest, but Morin denied this, saying the board "has been measured and thoughtful in its actions with respect to Capstone."
Morin wrote that a team of Capstone consultants has been working with Sealy's management team since 2007 "at the company's request."
His letter added, "With KKR's support and an additional investment of $90 million in 2009, the company was able to weather one of the worst economic downturns in the last 100 years, while major competitors such as Simmons, Spring Air and IBC filed for bankruptcy protection."