Tempur Sealy Cushions Shareholders After Selloff

Tempur Sealy International Inc TPX shares plunged last week after it split with its largest customer, Mattress Firm, losing more than 25 percent in a day, and the mattress maker’s board has responded to the selloff with a shareholder rights plan.

The plan, announced Thursday, gives shareholders one “right” for each share of common stock, and becomes exercizable if a person or group acquires 20 percent or more of Tempur Sealy’s stock without board approval. In that case, rights-holders would have the ability to purchase Tempur Sealy shares valued at twice the price paid to exercise the option. The plan expires February 7, 2018.

One KeyBanc analyst said Thursday’s shareholder news points to a potential future sale of Tempur Sealy.

A Defensive Strategy

Shareholder rights plans are usually enacted when a company feels it’s under assault from an activist investor or hostile takeover.

The effect of giving shareholders the ability to buy shares at a discount is to dilute the stake — and make shares prohibitively expensive — for hostile buyers.

“The adoption of the rights plan is intended to protect Tempur Sealy and its stockholders from the actions of third parties that the board of directors determines are not in the best interests of Tempur Sealy and its stockholders, and to enable all stockholders to realize the long-term value of their investment in Tempur Sealy,” the Lexington, Kentucky-based company said in its announcement of the plan.

Mattress Firm, Tempur Sealy Sleeping In Separate Beds

After the January 30 announcement that Tempur Sealy was terminating its supply agreement with Mattress Firm, Wedbush analyst Seth Basham estimated the development could cause Tempur Sealy to lose 55 percent of its Tempur-Pedic business and 85 percent of its Sealy business with Mattress Firm.

Tempur Sealy was downgraded by KeyBanc, Raymond James and Nomura in January.

The termination will pressure the mattress maker’s earnings, and the lost volume will be difficult to replace.

“We would not rule out the [companies] coming to an eventual agreement,” Basham said at the time, “but see that as a low probability, particularly in the near term.”