Plant closings coming in Simmons-Serta deal?
The phrase “plant closings” does not appear in a report on cost savings that Simmons and Serta expect to realize following the acquisition of Simmons by Serta’s parent. But bedding insiders tell us that plant closings are certainly on the way.
The outline of cost savings is included in documents filed in U.S. Bankruptcy Court as part of Simmons’ Chapter 11 filing, a step in the acquisition process. The documents say that run-rate cost savings of approximately $50 million annually are expected to be achieved within 18 to 36 months after the closing. It says that cost savings are “primarily expected to be derived from improvements in raw material sourcing through volume purchasing and vendor best-pricing, optimization of logistics including expansion of in-house logistics capabilities and implementation of manufacturing best practices.”
But it will be costly to achieve those savings: The report says the cost is expected to be in “the $30 -$40 million range.” And those expenses “will be incurred in the form of capital expenditures and non-recurring restructuring costs.”
I asked a couple of bedding presidents how they think Serta and Simmons will achieve cost savings.”Plant closings” they responded. Plant closings certainly fall under the category of “restructuring costs.” Furthermore, it is expensive to close a plant, with one exec putting the cost at about $1 million per plant.
Serta and Simmons each have a national network of bedding plants. When the companies fall under common ownership, there will be no need to maintain those separate networks, bedding executives tell me. The roster of plants will be culled, with the strongest plants making the cut and others being closed, according to the execs.
That line of thinking is broadly held in the industry. Do you think it is on target?
JW commented:
Like any other industry, what will it take to keep the investors happy and keep this big company successful? We do not need more failure but more success. I hope that they can make their business as efficient as possible, be creative and exhibit the leadership that can help the mattress industry.
Get Answers commented:
Why speculate? Ask the leaders of Simmons/Serta for their vision. Customers deserve the right to know "what is the plan?"
I'm sure Vegas market will be enlightening. Don't be fooled by the $40-$50m number. That can be easily achieved without closing any plants.
Tina commented:
Many of these plants are located less than 150 miles from each other and they are running at less than 50% capacity. Management has the responsibility to make these tough decisions.
Big M commented:
Does anyone really think they would keep both seperate with seperate plants, sales reps, management, etc...No way-for one thing with the debt load it won't work. They will start doing cost cutting measures one at a time until eventually it is all one. They have no choice, this is the reality of it.
Lisa Stansbury commented:
This is why I am confused. I have no idea how they plan on keeping the two "separate." It doesn't make sense. Why would you need to send two trucks to the same store, when you could do it with one (especially if it came from the same plant)? I guess we'll just sit back and watch.
