Strategies and Synergies of Tempur-Pedic International's plan to Case Study

Strategies and Synergies of Tempur-Pedic International's plan to acquire Sealy Corp - Case Study Example These two companies had agreed to merge and create $2.7 billion international bedding provision. This agreement entails an acquisition of $242 million and assumption of $750 million in debt by Tempur-Pedic International from Seal Corp. Apparently, Seal Corp had raised its shares up by 9 per cent in anticipation of the acquisition by the rival firm. The shares traded at $2.33. Tempur-Pedic felt threatened by the rapid up scaling of the Sealy Corp and was determined to recapture the market share. Under the agreement, Sealy Corp would continue with its independent operations under its Chief Executive Officer, Larry Rogers. He will report to the Tempur-Pedic’s Chief Executive Officer, Mark Sarvey. Although Tempur-Pedic Corp and Sealy Corp are both bedding companies, they each took separate paths over the past twenty years. Tempur-Pedic that was founded 1992 and later emerged as the biggest manufacturer of mattresses in 2011. Consequently, its sales revenue rose by 28 per cent attaining a $ 1.42 billion point. Sealy Corp has been operating for 131 years but the rise in Tempur-Pedic resulted in the plunging of its shares by more than ninety per cent in 2006. Consequently, its sales revenue was reduced to $1.23 billion during the 2011 public initial offer (Arora & Mukherjee, 2012). Sealy Corp had H Partners Management LLC as its number one shareholder. The New York based KKR and the Bain Capital are other important shareholders. Tempur-Pedic’s shareholders include Kohlberg Kravis Roberts (myNews, 2012). Tempur-Pedic’s strategic rational Tempur-Pedic aims to expand its operations to cover more than eighty countries globally. Its acquisition of the Seal Corp is a movement towards this direction aimed at strengthening its efficiencies. Its long-term goal is to ensure that its expansion strategy will result in value addition to its global customers, shareholders and retailers. By merging with the Sealy Corp, Tempur-Pedic believes that it will create enough synergy that is instrumental to drive it into attaining this goal. Besides, Tempur-Pedic hopes to take advantage of the two companies’ highly regarded technologies, brands, geographic footprints and products to tap into the significant opportunities (Arora & Mukherjee, 2012). Is the current o ffer of $2.20 per share a fair offer for ZZ? The second quarter of 2012 saw Tempur-Pedic’s cashing $134 million and equivalents. This is despite the fact that it operates with debts, both short and long term of $682 million. This places it in a net debt position of $548 million. However, this position would be increased after merging with the Sealy Corp in the $ 1.3 billion transaction to $1.8 billion. The first half of 2012 saw Tempur-Pedic’s revenue generation attain a $713.9 million mark, giving it a net of $85.3 million. This is equivalent to $1.31 for every share diluted. The firm expects to generate $1.43 billion n revenues independent of Sealy Corp. This will create expected earnings of $2.80 for every diluted share. Based on this valuation methodology, it will be appropriate for Tempur-Pedic to offer its shares at $2.80 instead of $2.20 (Empowered News, 2012). Do you think TPX or ZZ shareholders are getting the better deal at this price and why? The $1.3 billio n transaction between Tempur-Pedic International was not fully welcomed by all the shareholders of the two firms. The Sealy Corp shareholders were only entitled to a cash of $2.20 for each Sealy stock share owned. This represents a 3 per cent premium of the past closing stock and unfavorably lower than the fifty-two week high of $2.45. This has potential of undervaluing the Sealy