Tempur-Pedic to Acquire Rival Sealy

On Thursday, Tempur-Pedic International

announced that it was acquiring rival Sealy Corp.

for around $242 million. The deal also includes the assumption of about $750 million in debt. The news sent shares of Sealy up a little less than 3 percent, as the takeover did not come at a substantial premium. The per share price of the deal is $2.20, which is a penny less than where the stock was trading on Wednesday. Tempur-Pedic shares on the other hand have surged better than 16 percent as investors appear to believe that the acquisition will help the company. Sealy was hit very hard in the wake of the financial crisis, and over the last five years the stock had traded down more than 84 percent. Nevertheless, shares have risen around 28 percent in 2012. Reuters reports that Tempur-Pedic has been struggling to maintain its market share in the fast-growing market for foam mattresses. Struggles with the business have sent TPX down around 47 percent over the last year, including a more than 40 percent decline in 2012. Prior to slashing its full-year forecast in June, the stock had soared to new all-time highs, but was subsequently halved. "After many years of dominating the foam niche of the bedding category, the world has changed for Tempur-Pedic," Bradley Thomas of KeyBanc Capital Markets said in a client note. "Tempur-Pedic (with this deal) will firmly become a part of the normal mattress world, and will no longer be a niche player," Thomas added. The deal will bolster Tempur-Pedic's product offering and give it a presence in more than 80 countries, according to the company. Tempur-Pedic also expects the deal to generate cost synergies of $40 million over the next three years. According to Tempur-Pedic, it has already received consent from Sealy shareholders who control around 51 percent of the company, and do not need any other shareholder approvals to complete the transaction. Private equity firm Kohlberg Kravis Roberts & Co. owns around 44 percent of Sealy after taking the company private in 2004 for $1.5 billion. Under the terms of the takeover, the two companies will remain independent and Sealy CEO Larry Rogers will report to Tempur-Pedic CEO Mark Sarvary.