HOUSTON – Tempur Sealy International’s plan to buy Mattress Firm, the industry’s largest specialty sleep retailer, would allow the mattress maker to “build a competitive moat” by taking “maximum control” of the retailer, according to portions of the lawsuit that have been unsealed.
Portions of the previously redacted lawsuit filed by the Federal Trade Commission to block the proposed $4 billion acquisition refer to emails, text messages and investor presentations that include Tempur Sealy’s plans to “eliminate future competition.” Throughout the document, Mattress Firm is referred to as a “kingmaker” – by both Scott Thompson, Tempur Sealy CEO, and Mattress Firm executives – for its ability to make mattress brands successful.
In July, when the FTC first filed its complaint against the deal in the U.S. Court for the Southern District of Texas, much of the document was redacting blocking key information and details of outlining the case. Judge Charles Eskridge issued an order that unsealed some, but not all, of the complaint.
For its part, Tempur Sealy has filed a point-by-point answer to the allegations outlined in the complaint. The company denies many of the allegations. In some instances, where the complaint includes quotes from documents, Tempur Sealy refers the court to the document for a “full and accurate view of its content.”
In laying out its case, the FTC said “multiple high-ranking” Tempur Sealy executives expressed a desire to “eliminate and block” competing mattress brands, including Serta Simmons Bedding, Resident Home’s Nectar, Purple and Casper.
Specific to Nectar, the document said a Tempur Sealy vice president wrote “hopefully we buy (Mattress Firm) and take them off the floor.” In reference to the proposed acquisition’s impact on Serta Simmons, the court file alleges a vice president of a Tempur Sealy subsidiary said depending on Serta Simmons’ competitive response, Thompson “will push them completely out the door at (Mattress) Firm.”
At the heart of the FTC argument against the acquisition is that Tempur Sealy would have a “strong financial incentive” to “disfavor rival mattress suppliers” in favor of selling its own family of brands. The unredacted complaint quotes a Mattress Firm sales associate as saying “Why would Tempur Sealy be okay with us still selling (Serta Simmons), Purple, etc. Logically, that’s like Coca-Cola buying out a Pepsi distributor and still being Okay with them selling Pepsi product.”
Tempur Sealy denies those allegations.
The two companies announced the proposed acquisition in May 2023. The FTC had begun its investigation into the deal the prior fall, reaching out to mattress retailers and mattress makers to gauge the impact such a merger would have on the industry.
The FTC voted 5-0 to block the deal in July and followed up with its lawsuit to stop the acquisition from going through.
The complaint digs back to 2020 and alleges that Tempur Sealy and Mattress Firm made a “handshake” deal to keep Casper off the retailer’s floors. Then, asserts that in 2019 and 2021, the mattress maker tried to “pressure Mattress Firm to expel mattresses from Purple, which Tempur Sealy viewed as a competitive threat.”
In its response, Tempur Sealy denies having tried to undermine competition, but said “as a horizontal competitor, it has competed vigorously for floor space” at Mattress Firm. Tempur Sealy said the agreement with Mattress Firm over Casper revolved around co-op advertising funds and denies trying to dictate whether the retailer sold Purple products.
The complaint references the Casper agreement and alleges that Tempur Sealy requested an email from the Mattress Firm CEO documenting the agreement. John Eck isn’t named in the complaint, however, he was in the CEO seat in 2020 and remains in the position today.
The complaint says the Mattress Firm CEO declined saying “it is in neither of our best interest, especially a future owner of (Mattress Firm) to have this documented in the files.”
Tempur Sealy denies those allegations and refers the court to the document referenced for a full view of the content.
Regarding Casper and the “handshake” deal, the FTC alleges that Mattress Firm has tried to add Casper to its showroom floors. However, when Tempur Sealy learned that the retailer and Casper were in discussions in 2022 – the same year Mattress Firm’s planned and later pulled IPO became public – the mattress maker pushed the agreement “threatening Mattress Firm’s business.”
The complaint alleges that Thompson told Tempur Sealy executives to “please inform them that if Casper goes on the floor we will be rolling out 500 Sleep Outfitters stores in their market …. Our roll out will hurt there(sic) IPO and when their shareholders ask me why we rolled out stores I will tell them Casper issue they did not honor … Someone will be fired.”
Tempur Sealy has responded that Mattress Firm tried to floor Casper, but hasn’t yet done so, and also admits that in 2022, it raised concerns about the move. Regarding the quote, Tempur Sealy refers the court to the document quoted for a complete view.
The FTC said third party investors that had reviewed the proposed Mattress Firm acquisition concluded that Tempur Sealy could disfavor competitors at the retailer and grow its own brands. The FTC references a 2018 email to Thompson from an investor that said acquiring Mattress Firm could result in “removing Mattress Firm’s retail distribution from the grasp of others would dramatically raise the barriers to entry in the industry and make it nearly impossible for rival brands to achieve scale.”
Tempur Sealy repeats throughout its answer that its intention is to maintain Mattress Firm as a multi-vendor retailer post acquisition.
As previously reported, the FTC complaint alleges that Tempur Sealy has used its Tempur-Pedic brand to grow floor slots with its other brands, including Sealy and Stearns & Foster, by requiring retailers to display mattress from those brands to be able to continue selling Tempur-Pedic.
While Tempur Sealy denies the allegation, the complaint said that following the 2013 merger of Tempur-Pedic and Sealy, the company began requiring new Tempur-Pedic dealers to floor the other brands. Pre-existing Tempur-Pedic retailers were exempt from the requirement, according to the complaint, until 2022 when the company introduced “kill grandpa”. The plan, according to the suit, was to “eliminate the exemption held by the ‘grandfathered’ retailers.”
Tempur Sealy said the FTC’s characterization is of the strategy misleading, but said it had a program to encourage retailers to carry a range of Tempur Sealy brands.