Two major mattress makers are getting into bed with one another.
Tempur-Pedic International said Thursday it will acquire rival Sealy in a deal valued at approximately $1.3 billion. As part of the agreement, Tempur-Pedic will assume or repay all of Sealy's outstanding convertible and non-convertible debt worth about $750 million.
The deal is expected to close during the first half of 2013. Shares of Tempur-Pedic soared on the news.
By acquiring Sealy, Tempur-Pedic -- the manufacturer and distributor of mattresses and pillows made from memory foam technology developed by NASA -- is attempting to regain market share from fast-moving rivals in the burgeoning market for foam mattresses, popular with aging baby boomers.
Tempur-Pedic’s market value fell by half to about $1.5 billion after it slashed full-year forecasts in June, blaming intensifying competition from privately owned mattress manufacturers such as Simmons Bedding and Serta.
Bradley Thomas, an analyst at KeyBanc Capital Markets, told clients in a research note that after many years of dominating the foam niche of the bedding category, the deal with Sealy will allow Tempur-Pedic to “become a part of the normal mattress world.”
“The world has changed for Tempur-Pedic, Thomas said.
In acquiring Sealy, the long-time industry leader, Tempur-Pedic will gain expertise and strong brands in the market for traditional inner-spring coil beds with brand names such as Sealy Posturepedic and Stearns & Foster.
The combined company will have a presence in more than 80 countries and the deal will give Tempur-Pedic more than $40 million in cost synergies over three years, the company predicted.
Tempur-Pedic said it has received consent for the deal from Sealy’s board of directors, and also from a majority of Sealy shareholders. No additional shareholder approvals are required to complete the transaction, Sealy said.
Following the deal’s close, Tempur-Pedic and Sealy will continue to operate as independent companies and Larry Rogers will remain CEO of Sealy and report to Tempur-Pedic's CEO Mark Sarvary.
Reuters contributed to this report.
Click here to check on shares of Sealy, and Tempur-Pedic.
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