Company News
May 29, 2023
Wanhua Starts TDI Plant
Wanhua’s 250kT TDI Facility in Fujian Starts Production, Phase II 300kT TDI Project is Around The Corner
PUdaily | Updated: May 24, 2023
On May 22, 2023, Wanhua Chemical successfully started its 250kT TDI facility in Fujian with producing qualified products, marking another breakthrough in the TDI industry, according to the company announcement. With this, Wanhua now has four TDI production bases globally, with a total production capacity of 950 ktpa, including 300 ktpa in Yantai, 250 ktpa in Fujian, 250 ktpa in Hungary, and 150 ktpa at former Juli Group’s plant. The company contributes 30% of the global TDI capacity, making it the largest TDI supplier in the world.
Meanwhile, Wanhua Chemical is preparing to launch its Phase II 300 ktpa TDI project in Fujian, according to public information. It is estimated that Wanhua’s TDI capacity in Fujian will exceed 550 ktpa after the operation of its Phase II 300 ktpa facility. Based on the construction speed of Wanhua’s previous projects, it is likely that the Phase II TDI facility in Fujian will start operating at the end of 2024.
The global TDI consumption will be around 2 million tonnes in 2023 and roughly 2.4 million tonnes in 2025, according to Pudaily’s forecast. It is estimated that global TDI capacity will reach 3.515 mtpa after the completion of Wanhua’s Phase II 300 ktpa TDI facility in 2024. In the future, the TDI supply-demand balance will continue to tilt, and the oversupply situation will become prominent, leading to intense competition.
May 15, 2023
Stepan Price Announcement
Effective July 1, 2023, or as contracts allow, Stepan will increase the price for STEPANPOL® and TERATE® Rigid Polyester Polyols used in the Americas by $0.04 per pound. This increase is necessary due to the continued escalation in diethylene glycol costs.
May 15, 2023
Westlake Epoxy Highlights from Earnings Call
Westlake Corporation (WLK) Q1 2023 Earnings Call Transcript
May 04, 2023 10:56 PM ETWestlake Corporation (WLK)
137.3K Followers
Q1: 2023-05-04 Earnings Summary
EPS of $3.09 beats by $0.94 | Revenue of $3.36B (-17.26% Y/Y) misses by $51.05M
Westlake Corporation (NYSE:WLK) Q1 2023 Earnings Conference Call May 4, 2023 11:00 AM ET
Company Participants
Jeff Holy – Vice President & Treasurer
Albert Chao – President and Chief Executive Officer
Steven Bender – Executive Vice President and Chief Financial Officer
Albert Chao
Thank you, Jeff. Good morning, everyone. We appreciate you joining us to discuss our first quarter 2023 results. For the first quarter of 2023, we achieved sales of $3.4 billion, net income of $394 million and EBITDA of $825 million. These solid results reflect significant improvement in volumes, margins and earnings from the fourth quarter of 2022 as customer destocking activity moderated, end market demand improved, and we benefited from lower feedstock fuel and power costs.
As demand improved in the first quarter, we shifted sales volumes from exports to domestic markets, contributing to better sales mix and higher integrated margins. We also benefited from lower feedstock and energy costs compared to the levels of 2022 as our globally advantaged low-cost feedstock and energy position in the U.S. Gulf Coast improved further, but we also saw lower energy costs in Europe as well. Our results for the first quarter also reflected the achievement of approximately $25 million of cost savings in this quarter towards our previously communicated $55 million to $105 million of targeted 2023 cost savings. Each of these factors supported solid improvement in our integrated margins on the fourth quarter of 2022.
Looking at our first quarter financial results, I’m particularly proud of our HIP segment performance, which maintained EBITDA margin of 20%, similar to the first quarter of 2022. These margins were achieved despite a 21% decline in volume when compared to the prior year period, which was driven by the decline in home building activity due to lower affordability from higher mortgage rates.
This demonstrates the benefit of our product mix and strength of our brands. The margin stability of these businesses along with the long-term growth opportunity in the U.S. housing market were key reasons why we invested in the HIP segment in 2021 through the acquisitions of Boral Building Products, LASCO Fittings and Dimex. We continue to have a positive long-term view of the U.S. housing market, driven by the deficit in new housing construction since the Great Recession in 2020 — 2008 and increasing demographic demand.
Turning to our PEM segment. We continue to operate with agility as we navigated the current market dynamics by shifting PVC and polyethylene sales volume back from export markets to rebounding domestic markets, while solid chlor-alkali markets drove higher average selling prices for both chlorine and caustic soda in North America. Lower feedstock energy prices, combined with our cost reduction actions, drove significant improvement in integrated margins from the fourth quarter of 2022. Overall, I’m very pleased with our first quarter performance and the team’s ability to successfully adjust to rapidly changing end market trends.
Steven Bender
Essential Materials sales in the first quarter of 2023 decreased $164 million over the first quarter of 2022, primarily driven by higher average selling prices for caustic soda. As compared to the first quarter of 2022, our earnings were impacted by lower integrated margins for all of our Performance Material products, including PVC, epoxy, polyethylene and lower production and sales volumes across most product lines. These headwinds were particularly — were partially offset by higher average selling prices and Essential Materials along with lower fuel and energy prices.
PEM’s segment EBITDA of $615 million in the first quarter increased $172 million from the fourth quarter of 2022 as a result of 6 key elements. Higher production and sales volumes, particularly in PVC and epoxy resins,
Essential Materials sales in the first quarter of 2023 decreased $164 million over the first quarter of 2022, primarily driven by higher average selling prices for caustic soda. As compared to the first quarter of 2022, our earnings were impacted by lower integrated margins for all of our Performance Material products, including PVC, epoxy, polyethylene and lower production and sales volumes across most product lines. These headwinds were particularly — were partially offset by higher average selling prices and Essential Materials along with lower fuel and energy prices.
PEM’s segment EBITDA of $615 million in the first quarter increased $172 million from the fourth quarter of 2022 as a result of 6 key elements. Higher production and sales volumes, particularly in PVC and epoxy resins,
Michael Sison
Nice start to the year. Albert, I think you mentioned that 2Q tends to be seasonally better than 1Q. As you said — as you look at demand and where integrated margins are for all your businesses, how do you think that plays out this year given things are weakening across the board?
Albert Chao
Yes. We’ve seen inventories destocking run its course and pretty much finished that destocking process. And we believe that customers are reordering as they see the demand. And we believe that the economy has stabilized through the changes in interest rate increase, and it should improve from the bottoms we’ve seen in the fourth quarter of 2022.
But having said that, the Fed just raised interest rates, and they could have repercussions in the economy going forward. But we believe that the U.S. economy is still quite long, domestic demand is quite strong. We’ve seen that in our — both in the PEM segment, polyethylene, PVC as well as in our HIP Building Materials business. So we are cautiously optimistic that we will see some improvements. It doesn’t mean that we’ll go back to 2022 or 2021 high levels before the interest rates start increasing.
Kevin McCarthy
Albert, in your press release, there is a comment that you saw increasing demand for epoxy resins which surprised me a little bit. Can you elaborate on what you’re seeing in the epoxy market with regard to demand and operating rates? And looking ahead, are you seeing any increased stability in the pricing function there?
Albert Chao
Sure, Kevin. Yes, we see epoxy demand improving, primarily in North America, still quite weak in Europe with a high cost position in Europe and also in Asia, it’s relatively weak. But we are seeing signs of improvement and the U.S. economy is still growing. We need more windmill blades and coatings as well as structural products. So we believe that the epoxy business should have a good position going forward, but not as, of course, robust as in 2021, 2022. But we believe the demand is there. And I think when the economy recovers, the increased demand in epoxy, especially in the U.S. with a lower cost position as well.
John Roberts
You noted the increased exports of polyethylene and vinyls. Could you talk about some of the geographic shift that’s going on in epoxy. So we’ve got China epoxies moving into Europe. Are you shifting any of your geographic footprint in our epoxy sales as well?
Albert Chao
Yes. We are reacting to all the dynamics in the very competitive global marketplace. And as I said earlier, the China with its economy has been slowing in the past years or quarters, they exported the epoxy and as well as PVC to places like India and Europe. But we’re seeing that being slowing down the Chinese economy is improving, but things could change. So — but we are very cautious and colleagues and all the activities going on.
Duffy Fischer
Fair enough. And then one of your large competitors in epoxy has talked about doing some pretty significant restructuring of their assets, you’ve had years for about a year. As you look at it, do you have the right footprint, do you think an epoxy — or do you think you need to do some significant restructuring of your asset base as well?
Albert Chao
Yes, certainly, we are new to the epoxy business and have had ownership for a year. We find a lot opportunity to improve. And as we go forward, we’ll try to improve our positions.
Hassan Ahmed
Fair enough. So now on the epoxy side of it Albert, you obviously — the commentary sounded incrementally positive. So is it fair to assume that potentially Q4 and Q1 were the trough and sort of things start cycling up from there. And if that is the case, this inflection, will this be primarily sort of demand driven with sort of China picking up and the like? Or will it be partly demand driven and partly supply driven as well, where sort of — in that sort of positive commentary you’re being in maybe some capacity rationalization in the marketplace. Maybe less disruptive pricing. You talked obviously about China exporting less now. So I’m just trying to figure out supply and demand wise, what you guys have seen there.
Albert Chao
Yes, that’s a very good question. I think for PVC, we think you are right that Chinese demand increasing, especially real estate, which is a big component of the economy and the government tried to stimulate that part as well, that dimension increase of less export and pricing should improve and so as caustic. On the epoxy side, little bit different. It’s not that a big business and the Chinese are building.
Looking for the windmills and windmills are just getting back in China of new construction. Certainly, everybody needs a renewable energy and lower cost. So it takes time for that to come into this place. Meanwhile, as one of the earlier questions that they have been exporting the amount overseas. But as the year progresses in next year, I think next few years, definitely, the demand for epoxy globally will increase improve. But this year is still a — maybe it’s a bottom of the cycle year.
Turner Hinrichs
This is Turner Hinrichs on for Angel. I was wondering if you could give us a little more color on your epoxy business results, specifically how they compare to 1Q ’22 of last year and 4Q ’22 of last year as well. And as part of that, would you say your epoxy business is gaining share in the market? Or how is Westlake’s position evolving in light of the ongoing imports from Asia and strategic moves by one of your peers?
Steven Bender
So good question. So the market was meaningfully stronger in the first quarter of 2022. And so you certainly have seen a change in market dynamic in terms of demand first quarter of 2022. So I’d say that with the energy power circumstance that we have, let’s say, in Europe, European epoxy is in a much better position to be able to compete. But you’re right, there is still imports of Asian epoxy into the European market, though as the Asian markets begin to rebound, less so in terms of the volume of epoxy resins into that market.
When you think of the domestic market for our epoxy resin, as Albert noted earlier, it’s a stronger position that we see there in terms of overall market demand. And so I would say that the troughs that we saw in fourth quarter as everybody was destocking across all product chains, we certainly saw that really come to an end at the end of the fourth quarter.
And so I would say that we see some recovery as we get into ’23 with ’24 and beyond being stronger markets as we see greater demand for wind energy and windmill contracts being led in ’22, ’23 and ’24 and beyond. And those will take time before those windmills are constructed and the demand really gets much stronger. So I’d say ’23 is one of those years we see a strengthening of the market but not fully backed by any means back to the levels that we saw in ’21 and first quarter of ’22.
https://seekingalpha.com/article/4600294-westlake-corporation-wlk-q1-2023-earnings-call-transcript
May 11, 2023
Highlights from Tempur Sealy Investors Call
Tempur Sealy International, Inc. (TPX) Q1 2023 Earnings Call Transcript
May 09, 2023 12:32 PM ETTempur Sealy International, Inc. (TPX)
Q1: 2023-05-09 Earnings Summary
EPS of $0.53 beats by $0.02 | Revenue of $1.21B (-2.53% Y/Y) misses by $5.66M
Tempur Sealy International, Inc. (NYSE:TPX) Q1 2023 Earnings Conference Call May 9, 2023 8:00 AM ET
Company Participants
Aubrey Moore – Vice President of Investor Relations
Scott Thompson – Chairman, President, and Chief Executive Officer
Bhaskar Rao – Executive Vice President, and Chief Financial Officer
Scott Thompson
Thank you, Aubrey. Good morning, everyone, and thank you for joining us on our 2023 first quarter earnings call. I’ll start by sharing some highlights from our first quarter performance, and then Bhaskar will review our financial performance in more detail. After that I will share some closing comments before we open the call up for Q&A.
In the first quarter of 2023 net sales were approximately $1.2 billion and adjusted EPS was $0.53, which represents a 75% growth in sales and approximately 300% growth in adjusted EPS over the first quarter of 2019, a pre-COVID period. Compared to the same period last year, this represents a 3% decline in sales and a 23% decline in adjusted EPS, driven by launch costs to support our new innovative products in a less robust macroeconomic environment.
Our wholesale channel performed well. We reported wholesale sales stable to prior year as our continued global market over performance mitigated the heightened macroeconomic headwinds. Our direct channel performance was more impacted by the current environment. Unfavorable foreign exchange rates presented a challenge to our international operations and cost us $0.03 per share quarter.
As I noted, though industry conditions were less favorable than expected, it is very clear we continue to outperform the market and units appear to be stabilizing at a historical trough level. In the second quarter our expectation is that our sales will return to growth year-over-year, driven by continued global market outperformance and the rollout of our new products. We also anticipate industry demand will slowly improve in the back half of the year as comps ease.
As a reminder, U.S. produced mattresses consumption declined approximately an unprecedented 24% in 2022 representing trough unit production for the last 10 years. Most of the decline was post first quarter of 2022. As we’ve now fully lapped the challenging prior year comps, we anticipate the industry will slowly recover, resulting in a more stable U.S. bedding environment in the full year 2023 with the back half unit trends stronger than the first half.
Turning to highlights and some key wins in the quarter. First, we continue to see positive momentum in our brands and private label products at wholesale. Our high quality products leading customer service continues to drive third party retailers to lean into our brands and non-branded products. Our third party retail partners in the U.S. are especially supportive of the new Stearns & Foster product.
We are tracking to expand our third-party retail slots of Stearns by approximately 20% compared to the previous collection. We believe these slots will be coming from competitors, enhancing the total presence of Tempur Sealy brands on U.S. retail floors. We continue to make progress towards our goal of making Stearns & Foster our next $1 billion brand more than doubling its current size today.
On the product side, we’re well underway with our rollout of the new Stearns & Foster collection in North America. The new products are designed to further differentiate our high-end traditional Innerspring brand, while also offering an extended lineup of products that address the needs and differences of consumers.
The collection’s superior innovation, enhanced step-up opportunities, and elevated design together create unprecedented luxury Innerspring product that meets the needs of what we believe is an underserved consumer seeking a premium Innerspring product. Overall, Stearns & Foster performed well relative to the U.S. market in the first quarter, and we believe it’s currently the fastest growing major brand in the U.S.
The second highlight of the quarter is the launch of our new TEMPUR-breeze product and our new innovative line of smart adjustable bases in the U.S. These products build on the success of our prior generation of breeze and adjustable bases to provide even greater consumer benefits to America’s most highly recommended mattress. The new TEMPUR-breeze product features our latest Tempur material innovation, which delivers greater Tempur yield characteristics and greater cooling benefits.
In our new line of adjustable bases, we enhanced our connected-sleep platform and our continued focus on improving sleep and overall health and wellness of consumers. In addition to our sense and response technology for snoring featured in our previous smart base collection, the new bases also feature lumbar support at the touch of a button and advanced technologies, including our industry first acoustic massage and a range of relaxation features that help prepare customers’ bodies and minds with deep rejuvenative sleep.
Exclusive to the top-tier TEMPUR–Ergo ProSmart Base, wind down programs and SoundScape mode offers an immersive and multi-sensory experience. After very positive feedback from consumer studies and retail partner previews, we started shipping the new TEMPUR-breeze and the new TEMPUR–Ergo power bases in late first quarter. The rollout is going according to plan, and we have shipped over 75% of breeze four models to date.
We pre-built inventory to support a seamless transition across our valued Tempur-Pedic retail partners network. Most all retailers will be floored and selling for Memorial Day, which is when our new breeze and smart base advertising campaigns begin. This is the first North America Tempur mattress launch in four years.
The third highlight is that we’ve significantly fortified our supply chain and we’re executing orders within normalized order to delivery times. Our U.S. operating team, plant personnel have worked significant amounts of overtime to get us to the point of normalized order to delivery times The overtime and expediting cost hurt us a bit in gross margin in this quarter, but we’re thrilled to be back on normal customer service ahead of the prime selling season of second and third quarter. This is especially positive and we’ve accomplished this while outperforming the broader market.
The final highlight is that we successfully kicked off the rollout of our new Tempur International product this quarter. This all new lineup of mattresses, pillows, and bed bases have been strategically designed to optimize Tempur’s global addressable market. The expanded price points and consumer-centric innovations in the new collection will continue to appeal to our legacy ultra-premium consumers at prices of 3000 and above, while also meeting the needs of consumer shopping for mattresses between 2000 and 3000.
We streamlined the construction of the new products to drive future manufacturing efficiencies and enhance our ability to adapt our products to individual market’s needs. This updated process has enabled us to feel confident in unlocking a broader price range without materially altering our margin profile of our Tempur International business. We’re manufacturing both the new lines of products and the old line of products as we transition. This is a heavy lift for our overseas team, and after the transition period, we plan to optimize production of the new line, which we expect will be a positive driver for gross margins.
We are launching the new lineup in over 90 markets worldwide, and we’re staggering the rollout of these new products to allow for customized approach by region. In the first quarter, we kicked off the launch of our temporary European markets. We expect the rollout to be completed for all of our subsidiary markets in Europe and Asia by the third quarter, and to be completed by the end of the year for our third-party distributors. We expect the total rollout to be completed by the end of 2023, except for the UK, which has some country specific industry fire retardant regulations. We expect the UK to be fully floored by the first quarter of 2024. The early reaction to the new lineup has been very positive.
Scott Thompson
Nice job. Thank you, Bhaskar. I’m excited to share that we have announced this morning that we’ve signed a definitive agreement acquiring Mattress Firm, the nation’s largest mattress specialty retailer. This acquisition aligns with our strategy of acquiring companies that extend our competitive advantages, enable us to move closer to consumers and facilitate continued innovation. This combination will compliment Tempur Sealy’s extensive product development and manufacturing capabilities with vertically integrated retail.
First and foremost, Mattress Firm has been a valued retail partner for more than 35 years, and we look forward to welcoming their talented workforce and more than 8,000 employees to the Tempur Sealy family once the deal is closed. The transaction is expected to close in the second half of 2024, subject to satisfactory and customary closing conditions and applicable regulatory approvals. Mattress Firm is expected to operate as a separate business unit within the Tempur Sealy organization and to continue to provide customers with brands and products they desire.
This morning, we released a separate press release and investor presentation related to this transaction. Both can be found on our investor webpage. These documents provide further details on the transaction and the strategic rationale. We see this transaction as being attractive both strategically and financially.
Susan Maklari
Good morning. My question is around the acquisition that you announced this morning, appreciating what the synergies are, but how do you think about managing some of the perhaps channel conflicts that are going to come through with this and some of the adjustments that will need to be made in terms of product and offerings and logistics and those types of efforts in there, and just how are you thinking about some of those elements of this deal?
Scott Thompson
First of all, let me talk about channel conflict. First of all, we consider it — one of our expertise is the ability to manage omni-channel strategy throughout the world and have been doing it for a number of years. If you look at the most recent acquisition before this Dreams as kind of a maybe a beta test, Dreams is obviously a large retailer in the UK. We’re obviously in the UK and we did not have any problems with channel conflict in that acquisition. And we’ve been working on this, at least this has been in the marketplace where people have thought about this for years, probably five or six years. I doubt there’s anybody in bedding that is surprised with this transaction.
And if you move over to the States, we’re in retail stores. We’ve got our Sleep Outfitters operation, which is a direct competitor to Mattress Firm in the marketplace and we’ve got our Tempur stores. And although years ago, and I’m going to say what, four or five years ago, Bhaskar, yes, there used to be a little bit of noise in the system. I think once retailers saw how we operate our stores that I’m going say we’re a good retailer and we’re not really trying to steal share from anybody, it hasn’t been a problem. Additionally, over the years we have discussed this concept with various of our — various customers, large and small, and I think we have a good understanding of what their expectations are. And it’s, look, it’s going to depend on us having quality product, quality service, quality advertising and servicing them correctly, and making sure that they are not put at a competitive disadvantage. And so I’m not expecting any significant channel conflict as long as we deliver quality product at the right price with the proper support around it.
You asked about kind of logistics, and I assume you’re kind of moving towards synergies. You know, look, they’re both very large companies. We’ve put a $100 million down on a piece of paper. The kind of stuff you should be thinking about is warehousing and logistics. There are cities where we literally have warehouses within five miles of each other. And on a Tempur product, we would make the product in our plant, put it on a truck, take it to our warehouse, take it off the truck, put it in the rack where it would sit and wait for an order from Mattress Firm. And then we would get another truck, take it down from the rack, put it on the truck, and we would take it to their warehouse. Then they would take it off the truck, put it in their rack, and they would wait for a customer order, of which then they’d get another truck, take it down from the rack, put it in, and take it to the customer’s house. I mean that’s just the way the systems work. We’ve never been able to get the two companies to figure out how to clean up some of the logistics. So we think there’s good synergies in logistics and warehousing.
The other thing that may not be as evident to the people who aren’t in the business is on the manufacturing side and this would be on the Tempur side of the house, not the Mattress side of the house. I think everybody knows we’re ordered to delivery on Sealy. And so that means we don’t know what beds we’re going to make until we get an order from somebody. And I’d generally call it three, four days. And these are in Sealy operations as you know, these are manual manufacturing.
So we whipsaw the workforce. There are some days they show up at work and we’ve got lots of orders and we expect or would like for them to work overtime. Some days they show up at work and we don’t have enough orders, and they only get to work four hours. At most plants we decide on Friday afternoon if they’re going to work the weekend and of course there’s overtime involved in some of these swings, but it’s also just a quality of workforce and be able to hire people because the hours are variable. If we had real committed orders, I and had certainty of distribution, we could pre-build and level out the manufacturing.
So on the days that we don’t have specific orders, if we knew for sure we were going to get some orders, we could go ahead and build some product and level it out. And I think that’s a big quality improvement for us. It’s a workforce issue and there’s also, I believe, significant cost savings. We, of course, would have the normal insurance savings we call a little bit of overhead here, kind of savings. I think the other thing that may not be obvious that we’re really thrilled about, it’s one thing COVID kind of really, really highlighted was the supply chain around the world is not very robust. Okay?
And if you stop and think about it, the reason it’s not very robust is a little bit of what I just said. Nobody down in the supply chain knows for sure what their orders are. So everybody’s working kind of just in time. And being able to have, we’ll call it fully committed distribution, I think will allow us to fortify the supply chain by giving suppliers more certainty and being able to sign long-term contracts, which I think will also have quite frankly, some synergies.
The last one I’ll kind of throw up, there’s a laundry list here, but we’ve got your first question is, I think one of the other things that the combination does is, we have very sophisticated labs that test the quality of product. It is the core of Tempur, it is the core of Sealy, best-in-class ability to analyze foam, springs, durability. And so one thing we can do that would help a retailer is we can make sure the products that are put on their floor are the quality that they’re supposed to be and continuously test to make sure that we’re getting what we’re paying for. I think that will make the product sharper at Mattress Firm. I think that’s good for the customer, and I suspect we’ll find some opportunities from a cost standpoint, once you do the really hard analytics and test the product.
May 9, 2023
Tempur Sealy to Buy Mattress Firm
Leading Global Bedding Company Tempur Sealy to Acquire Mattress Firm, the Nation’s Largest Mattress Specialty Retailer
May 09, 2023 6:36 AM ETTempur Sealy International, Inc. (TPX)
– Significantly Expands Consumer Touchpoints and Accelerates U.S. Omni-Channel Strategy
– Simplifies Consumer Purchase Journey and Facilitates Innovation
– Streamlines Operations and Drives Adjusted EPS Accretion
– Tempur Sealy (TPX) to Host Conference Call to Discuss First Quarter 2023 Results and the Transaction at 8:00 a.m. Eastern Time Today, May 9th
LEXINGTON, Ky., May 9, 2023 /PRNewswire/ — Tempur Sealy International, Inc. (NYSE: TPX, “Company” or “Tempur Sealy”) and Mattress Firm Group Inc. (“Mattress Firm”) today announced that Tempur Sealy has signed a definitive agreement to acquire Mattress Firm, the nation’s largest mattress specialty retailer, in a cash and stock transaction valued at approximately $4.0 billion.
The transaction is expected to be funded by approximately $2.7 billion of cash consideration (subject to adjustments, including the repayment of Mattress Firm’s debt and other customary items) and $1.3 billion in stock consideration issued to Mattress Firm shareholders, reflecting the issuance of 34.2 million shares of common stock based on the closing share price of $37.62 as of May 8, 2023. The transaction is currently anticipated to close in the second half of 2024, subject to the satisfaction of customary closing conditions, including applicable regulatory approvals. Following the close of the transaction, Mattress Firm is expected to operate as a separate business unit within the Company.
Founded in 1986, Mattress Firm is the largest mattress specialty retailer in the U.S., operating over 2,300 brick-and-mortar retail locations and a growing e-commerce platform. Mattress Firm’s more than 6,200 highly trained retail sales associates provide personalized service to help consumers choose the ideal bedding products across their robust assortment of market-leading brands.
This combination will complement Tempur Sealy’s extensive product development and manufacturing capabilities with vertically integrated retail. Together, Tempur Sealy and Mattress Firm’s combined global footprint will include approximately 3,000 retail stores, 30 e-commerce platforms, 71 manufacturing facilities, and 4 state-of-the-art R&D facilities worldwide. These combined operations will be supported by more than 21,000 best-in-class employees with a collective focus on providing breakthrough sleep solutions to consumers in over 100 countries.
Tempur Sealy Chairman and CEO Scott Thompson said, “This transaction advances all four of our key long-term initiatives: to develop the highest quality bedding products, promote brands with compelling marketing, optimize our diverse omnichannel distribution platform, and drive EPS growth. Consistent with our M&A strategy, this acquisition will make Tempur Sealy more competitive by bringing us closer to consumers and facilitating continued innovation.”
Thompson concluded, “We are excited by the long-term growth prospects for our global vertically integrated Company. This combination will accelerate our growth trajectory and enhance operating cash flow. Mattress Firm has been a valued retail partner for more than 35 years, and we look forward to welcoming their talented workforce of more than 8,100 employees to the Tempur Sealy family.”
Mattress Firm CEO John Eck said, “We know that every customer has unique needs and wants when it comes to a sleep solution that is perfect for them. As part of Tempur Sealy, our customers will benefit from our combined portfolio of highly recognized brands and products, extensive omni-channel capabilities, industry leading innovation and best-in-class teams. Under Tempur Sealy’s leadership, our combined company will be in a unique position to take advantage of our shared values and complementary capabilities to better address consumers’ needs and drive growth.”
Strategic Rationale
The combination with Mattress Firm is expected to enhance Tempur Sealy’s ability to meet consumers’ needs, expand growth opportunities, and streamline operations.
We expect to leverage the individual strengths of Tempur Sealy and Mattress Firm to realize six strategic benefits through this acquisition.
- Expanding Consumer Touchpoints. Mattress Firm’s and Tempur Sealy’s combined consumer touchpoints will create opportunities to keep pace with consumers’ evolving preferences. Being closer to the U.S. bedding consumer will also broaden opportunities to develop lifetime relationships with consumers.
- Accelerating U.S. Omni-Channel Strategy. Mattress Firm’s more than 2,300 brick-and-mortar retail stores, robust e-commerce capabilities, and sleep education and sleep tracking platforms complement Tempur Sealy’s direct-to-consumer operations, enabling a seamless omni-channel ecosystem that meets the needs of more consumers nationwide.
- Simplifying the Consumer Purchase Journey. This combination facilitates targeted marketing efforts to drive incremental brand awareness through blended advertising and share of voice, and enhance consumer understanding of bedding innovation, including health and wellness benefits. Further, the combination brings together Tempur Sealy’s and Mattress Firm’s highly trained retail sales and customer service teams to expand customer service capabilities, facilitate improved consumer outcomes, and simplify the consumer purchase journey.
- Facilitating Consumer-Centric Innovation. The alignment of new product development and testing will enable a more targeted, end-to-end innovation approach and enhances opportunities to invest in, test, and refine new sleep technologies.
- Streamlining Operations and Enhances Supply Chain Management. Enhanced visibility to consumer demand creates opportunities for more agile and fortified supply chain management. Combined scale and vertically integrated infrastructure across the combined company drives operational efficiencies across logistics, transportation, warehousing, supply chain planning, sourcing, and product development, streamlining the order-to-delivery process for all customers.
- Driving Adjusted EPS Accretion. Tempur Sealy has a strong track record of creating long-term value from highly strategic M&A activities. This acquisition is expected to be accretive to adjusted EPS before synergies in the first year post close. Adjusted for the impact of run-rate synergies, this acquisition is expected to deliver low double digit adjusted EPS accretion.
Cost Synergies
Tempur Sealy expects to begin realizing synergies by the end of year two after closing and to realize at least $100 million in annual run-rate synergies by the end of year four after closing. The Company expects to achieve synergies by leveraging its global scale and vertically integrated infrastructure to drive efficiencies through logistics, product lifecycle management, manufacturing optimization, and sourcing initiatives.
Transaction Overview
Under the terms of the agreement, Tempur Sealy will purchase Mattress Firm for an enterprise value of approximately $4.0 billion. The transaction is expected to be funded by approximately $2.7 billion of cash consideration (subject to adjustments including the repayment of Mattress Firm’s debt and other customary items.) and $1.3 billion in stock consideration issued to Mattress Firm shareholders, reflecting the issuance of approximately 34.2 million shares of Tempur Sealy common stock based on the closing price of $37.62 per share as of May 8, 2023. Following the transaction, Mattress Firm’s and Tempur Sealy’s shareholders will own approximately 16.6% and 83.4% of the combined company, respectively, based on the Company’s shares outstanding at the time of signing. Tempur Sealy expects to expand its existing Board of Directors by appointing two mutually-agreed Mattress Firm directors to the Tempur Sealy Board following the closing of the transaction.
Tempur Sealy plans to fund the cash portion of the transaction using a combination of cash on hand and proceeds from a combination of new secured and unsecured financing, a portion of which will be used to repay Mattress Firm’s outstanding debt. The combined company’s expected net leverage at closing per the Company’s credit agreement after giving effect to the transaction is expected to be between 3.0x and 3.25x adjusted EBITDA. Tempur Sealy expects to return to its net leverage target range of 2.0x to 3.0x adjusted EBITDA in the first 12 months after closing, supported by the increased earnings and free cash flow outlook of the combined company.
Timing and Approvals
The transaction has been approved by the board of directors of Tempur Sealy and Mattress Firm. Mattress Firm shareholders holding more than 80% of Mattress Firm’s outstanding shares have signed voting agreements in support of the transaction. The transaction does not require Tempur Sealy shareholder approval.
The transaction is expected to close in the second half of 2024, subject to the satisfaction of customary closing conditions and applicable regulatory approvals, including receipt of clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
The Company has received a request for additional information and documentary material from the Federal Trade Commission (“FTC”) in connection with the FTC’s review of the transaction. The Company expects to work cooperatively with the FTC to complete the acquisition.
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