Tempur Sealy Gets a New Investor
Tempur Sealy's Largest Shareholder, H Partners, Demands Immediate Leadership and Board Changes to Drive Shareholder Value
Published: Feb 17, 2015 7:42 a.m. ET
Chronic Underperformance by CEO Mark Sarvary Overseen by Legacy Owner Representatives of TA Associates and Friedman Fleischer & Lowe
NEW YORK, Feb 17, 2015 (BUSINESS WIRE) — H Partners Management, LLC (“H Partners”), which together with certain of its affiliates, currently owns 10% of the outstanding shares of Tempur Sealy International, Inc. TPX, +3.36% and is the largest shareholder, today sent a letter to the Company’s Board of Directors.
The letter outlines significant concerns regarding the continued mismanagement and value destruction at Tempur Sealy under its current CEO, Mark Sarvary, who to this point is supported by the Company’s complacent and misaligned Board. H Partners is demanding an immediate leadership change to address Tempur Sealy’s lack of strategic direction, poor operational execution, contracting margins, and stock underperformance, including the immediate resignation of directors P. Andrews McLane of TA Associates and Christopher Masto of Friedman Fleischer & Lowe, both of whose private equity firms exited their investments many years ago.
The full text of the letter follows:
February 17, 2015
The Board of Directors
Tempur Sealy International, Inc.
1000 Tempur Way
Lexington, Kentucky 40511
Dear Mmes. Dilsaver and Koehn and Messrs. Doyle, Heil, Hoffman, Judge, Rogers and Trussell, Jr.:
H Partners Management, LLC (“H Partners”) currently owns 6,075,000 shares or 10% of the outstanding shares of Tempur Sealy International, Inc. (“Tempur Sealy” or the “Company”), making us the Company’s largest shareholder. We are long-term shareholders, having held shares of Tempur Sealy since 2012. We were also a large investor in Sealy Corporation (“Sealy”) for several years before it was acquired by Tempur-Pedic International, Inc. (“Tempur-Pedic”).
H Partners is an independent investment firm that aims to invest in good businesses with capable, well-aligned fiduciaries focused on long-term value creation. Since our inception in 2005, H Partners has generated an annualized return of 30% compared to 8% for the S&P 500 Index.1 We have a track record of significant value enhancement at companies in which we have become involved on the board and in decisions regarding management.
For almost two years, we have attempted to communicate constructively with Tempur Sealy Chairman P. Andrews McLane, an employee of TA Associates, Inc. (“TA Associates”), regarding the Company’s deteriorating operational performance, the serious shortcomings of CEO Mark Sarvary, and our considerable governance concerns. Our hope was that we could work together with Mr. McLane and Tempur Sealy’s board of directors (the “Board”) in a private manner to address these fundamental problems. Unfortunately, Mr. McLane has been unresponsive to our concerns and suggestions. Mr. McLane has also repeatedly blocked our requests for a single board seat, which would have allowed us to share our views with the Board. As such, we have no choice but to make our concerns regarding Tempur Sealy publicly known at this time.
In our view, the Board must immediately replace current CEO Mark Sarvary due to his consistently poor performance and failure to deliver on his promises to shareholders. Unfortunately, it has become clear that the current Board lacks a shareholder-focused mindset, is unwilling to hold management or itself accountable, and seems to be placing its own personal interests far ahead of the best interests of its shareholders. Therefore, the Board must also be immediately and voluntarily reconstituted with meaningful shareholder representation.
Tempur Sealy has the strongest brands in the mattress sector along with an outstanding team of dedicated employees. By replacing CEO Mark Sarvary with a proven leader, we believe Tempur Sealy can regain its status as the best mattress manufacturer in the world and can create substantial shareholder value.
In the following pages, we describe in greater detail:
1. A troubling history of underperformance and mismanagement under CEO Mark Sarvary, which makes an immediate CEO change necessary;
2. Our concerns regarding Tempur Sealy’s complacent and misaligned Board, dominated by representatives of former investors TA Associates and Friedman Fleischer & Lowe, LLC (“Friedman Fleischer”), even though both private equity firms exited their investments in the Company many years ago; and
3. Why H Partners’ track record of significant value creation at Six Flags Entertainment, Inc. (“Six Flags”) is highly relevant to helping Tempur Sealy overcome its current challenges.
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