Battle for Dial has captivated mattress industry

The bedding industry is abuzz over the fate of bankrupt retailer 1800mattress.com, and judging by all the legal maneuvering last week, the battle for control of this once-proud retailing entity could get ugly.

The retailer, formerly known as Dial-A-Mattress, is in Chapter 11 bankruptcy protection and has a tentative agreement to sell the company to Sleepy’s, its bitter rival in the rough-and-tumble New York market for more than two decades.

But several parties, notably a 1800mattress.com franchise group, seem determined to stop Sleepy’s and have argued in court filings that the proposed purchase price of $2.1 million is way too low. They also argue that the deal would enrich 1800mattess.com executives — primarily founder Napoleon Barragan — and leave unsecured creditors with nothing.

A few days before the bankruptcy filing, a investor group led by mattress industry veteran Ken Mazda thought it had a deal to buy the retailer without going through a bankruptcy reorganization. But then Sleepy’s swooped in and made a new offer that was contingent upon putting 1800mattess.com into bankruptcy.

We suspect Sleepy’s insisted on a bankruptcy filing so it could reject the leases and shut down all of 1800mattress.com’s bricks-and-mortar stores. And the franchise group believes Sleepy’s would also reject the franchise agreement, which would put the group out of business.

Mazda indicates he isn’t going away quietly, either. Court filings note he has threatened legal action against Sleepy’s, and an attorney for his investor group has entered his name on the bankruptcy court docket

Mazda, the franchise group, and any other interested parties have until May 16 to submit competing bids, but don’t think for a New York minute that Sleepy’s won’t push back. If you need a reminder of the company’s penchant for hardball tactics, read this recent column in the New York Post.

Sleepy’s did manage to get tentative court approval to provide 1800mattress.com with up to $550,000 in debtor-in-possession financing — loans that would come on top of a $150,000 bridge loan Sleepy’s provided before heading to bankruptcy court.

The bridge loan, by the way, is also the subject of a dispute. JP Morgan Chase, one of 1800mattress.com’s secured lenders, argues that it violates its loan agreement because the bank wasn’t notified in advance.