WASHINGTON – Tempur Sealy International has lobbed a fiery response to the Federal Trade Commission’s challenge to its proposed $4 billion acquisition of Mattress Firm saying the agency misread the breadth of the mattress industry and the various channels of distribution in which mattresses at all price points are sold.
In its 31-page filing with the FTC’s Office of Administrative Law Judges, Tempur Sealy outlines point by point, saying the commission failed to understand the nuances of the mattress industry and sliced out vital segments, including mattresses sold through Amazon and other direct-to-consumer sites and price points beyond the cited “vague ‘premium’” level.
Tempur Sealy argues that the proposed acquisition is “procompetitive” because it will “enhance competition, increase innovation and reduce costs – all to the benefit of American consumers.”
Pushing back against the FTC, “The Complaint raises no concerns about any loss of horizontal, head-to-head competition,” lawyers for Tempur Sealy write in the filing. “It does not claim that this merger will affect the vast majority of mattress retailers, of whom there are thousands (not even counting Amazon or other internet sellers). Nor does it allege that the merger will have any impact on the vast majority of mattress manufacturers, most of whom sell little or nothing through Mattress Firm.”
The response asks directly, “So, what, then, is the Complaint about?”
Tempur Sealy’s argument is that the FTC’s complaint suggests harm to a “tiny handful of mattress manufacturers” could be impacted. “In truth, that handful is just Serta Simmons, the only mattress manufacturer other than Tempur Sealy who uses Mattress Firm as a nationwide retail outlet,” the response says.
The filing offers a four-point answer to the FTC complaint filed July 2 in the U.S. District Court for the Southern District of Texas. The filing followed the commission’s 5-0 vote to block the deal. In its complaint, the FTC accused Tempur Sealy of looking to go after its competitors in the mattress making business.
In response to the FTC’s assertion that the proposed acquisition would limit access to the industry’s largest mattress retailer, Tempur Sealy said the commission did not offer details of Mattress Firm’s share of the mattress retail market or the “premium” category outlined in the complaint. Instead, Tempur Sealy argued that with the industry’s “thousands of mattress retailers, the prevalence of online sales and the many ‘premium’ brands that rely mostly on their own retail operations, it is not surprising that the Complaint fails to allege anything about market share or the amount of foreclosure.”
Tempur references a number of sleep specialty retailers, including Texas Mattress Makers, Mancini’s Sleepworld and Mattress Warehouse, as well as full-line furniture stores such as Ashley, Gallery Furniture and American Furniture Warehouse, as competing mattress sellers. The argument also reference big-box retailers Walmart and Big Lots; department store Macy’s; and warehouse stores such as Costco, as being retailers of mattresses.
Other channels for “premium” mattress sales, Tempur Sealy points out, are direct-to-consumer players, including Sleep Number – selling through branded stores and online – and the range or online brands like Saatva, Avocado, Helix and Brooklyn Bedding.
The second point Tempur Sealy argues is that the mattress maker’s plan is to maintain Mattress Firm’s multi-branded merchandising strategy as it has with previous retail acquisitions, such as Dreams in the United Kingdom.
“Tempur Sealy’s internal transaction analyses assumed that Mattress Firm would remain a multi-brand retailer, which is consistent with Tempur Sealy’s public statements to investors and post-merger supply agreements,” the response said. “Moreover, once vertically integrated, most of the combined company’s sales will come from the retail side of the business.”
The response goes on to say that, from “more than a dozen investigational hearings,” testimony showed that Tempur Sealy would “not remove or disadvantage other mattress suppliers from Mattress Firm.”
“For these reasons, the Complaint’s dependence on Tempur Sealy’s vigorous prior competition with its horizontal rivals is misplaced,” the response continued. “Vigorous horizontal competition is not only not illegal, it is the very thing antitrust law seeks to protect. And it is not predictive of how a vertically integrated firm will act.”
In its third point, the company argues that the FTC complaint “ignores the fact that Tempur Sealy has guaranteed the very distribution that the Complaint claims it will somehow deny.”
The company said that it is committed to reserving (redacted) “mattress slots at Mattress Firm for third-party” brands and pointed to its post-merger supply agreements reached with a number of mattress suppliers, including Purple. The other companies in the response are redacted.
The response also references Tempur Sealy’s commitment to divest of some Sleep Outfitters and Mattress Firm stores. The exact number is redacted; however, the number is around 200 stores.
“If Tempur Sealy’s plan were truly to deny distribution to rivals like Serta Simmons, it has made it awfully difficult to accomplish that goal,” the company’s response said.
The fourth point Tempur Sealy outlines are omissions the company says the FTC made in its complaint, including a lack of “cogent product-market definition, which gets no more specific than somewhere between ‘entry level’ and the ‘most expensive’ mattresses.”
The company’s response asks: “What price points are included? Who makes these mattresses? What market shares are associated with the mattress manufacturers and retailers? The Complaint never says. And the reason for these omissions is obvious. Any assessment of actual competition in the mattress industry would thoroughly discredit the Complaint.”
The response goes on to answer the FTC’s 121 outlined allegations from the commission’s complaint, denying 31 of the allegations and responding in more detail to the balance.
A prehearing scheduling conference in the matter has been set for July 19.