TRINITY, N.C. -- Mattress company Tempur-Pedic is buying rival Sealy for approximately $228.6 million in cash.
Tempur-Pedic International Inc. said Thursday that it will pay $2.20 per Sealy share, which is a 3 percent premium to the company's Wednesday closing price of $2.14.
Tempur-Pedic will also assume or pay back all of Sealy Corp.'s outstanding debt. The companies put the total value of the deal at $1.3 billion.
The buyout is expected to close during 2013's first half.
According to a news release from Sealy, the companies will operate independently.
Sealy CEO Larry Rogers, who has been with the company for 33 years, will remain in charge of Sealy, but will report to Tempur-Pedic CEO Mark Sarvary.
"This is a transformational deal that brings together two great companies, each with globally recognized brands," Sarvary said in the release. "Tempur-Pedic and Sealy together will have products for almost every consumer preference and price point, distribution through all key channels, in-house expertise on most key bedding technologies, and a world-class research and development team. In addition, our global footprint will span over 80 countries. The shared know-how and improved efficiencies of the combined company will result in tremendous value for our consumers, retailers and shareholders."
Sealy CEO Rogers released the following statement:
"The complementary product and market fit of these two companies deliver a unique opportunity to create the first full spectrum, global bedding company that addresses all market segments and consumer preferences. Together, we believe that we can deliver more value than either business could on its own by leveraging our strong combined assets."
With roots dating back to 1881, Sealy has been a leader in the manufacturing and marketing of a range of mattresses and bedding brands, including their Posturepedic and Stearns & Foster lines.
Tempur-Pedic, founded in 1992, makes and distributes mattresses and pillows in more than 80 countries under its Tempur and Tempur-Pedic brands. The company borrowed the memory foam technology developed by NASA. Memory foam mattresses conform to users' shape and position by reacting to their body temperature and weight.
Sealy, which was founded in 1881, makes a broad array of spring coil beds under brands including Stearns & Foster, Sealy and Sealy Posturepedic.
While Tempur-Pedic has a particularly strong presence in North America, Europe and Asia, Sealy has a strong presence in North America, Asia and Argentina. Sealy also has strong brand recognition through its international licensees and joint ventures.
'In one action, Tempur-Pedic gains access to new slots at major retailers and independents with a complimentary product suite," wrote Brian Sozzi, chief equities analyst at NBG Productions in a note to clients. "Essentially, the company has fought to build a wall around itself from competitors that have demonstrated innovation." Sozzi estimated that annual revenue combined for the two companies is around $2.8 billion to $3.1 billion for 2012, making the combination the world's largest mattress company.
Stockholders with about 51 percent of Sealy's outstanding shares have put forth a written consent approving the deal. No additional shareholder approvals are needed to complete the acquisition.
Both companies' boards have approved the buyout, which is expected to close during 2013's first half.
Annual cost savings for the combined company are expected to be more than $40 million by the third year.
The announcement came as Sealy reported a loss of $106,000, and broke even on a per share basis for the third quarter ended Aug. 26. That compares with a profit of $6.6 million, or 7 cents per share in the year-ago period.
Revenue rose 9 percent to $365.4 million in the quarter.
Analysts had expected profit of 3 cents per share, on revenue of $344.2 million, according to FactSet.
In July, Tempur-Pedic International reported that its second-quarter profit fell 45 percent, but it managed to beat market expectations.
It blamed the profit decline on increasing promotions and discounts to keep up with the market. Tempur-Pedic made up for the soft North American market, where revenue fell 8 percent, with strong sales in international markets, where revenue grew 8 percent. Its total revenue fell nearly 4 percent to $329.5 million.
Tempur-Pedic warned investors in June that weak sales in North America would hurt its performance for the period.
Some information from The Associated Press was used in this report.