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Hedge Fund H Partners Management Takes Aim at Tempur Sealy

In a letter seen by The Wall Street Journal, hedge fund H Partners Management told mattress maker Tempur Sealy’s BoD that it believes that CEO Mark Sarvary should be removed immediately. H Partners is Tempur Sealy’s largest investor, and also noted in the letter it has requesting a seat on the board to assist in the search for a new CEO, but the company has rejected its request.

Tempur Sealy – More on H partners activist campaign

A statement from Tempur Sealy said it was “disappointed that H Partners has chosen a public forum to advance its individual agenda.”

The current activist campaign follows H Partners’ earlier run in with Sealy Corp., where it complained about PE firm KKR & Co.’s management of the company before Tempur-Pedic International acquired Sealy in mid-2013.

The New York-based H Partners ipdated its 10% stake in Tempur Sealy to an activist position earlier this month, giving notice it would seek discussions with the BoD. Tempur Sealy stock moved up around 9% when the news was released.

According to WSJ sources, H Partners will publicly release the letter Tuesday, just ahead of a Tempur Sealy investor day Wednesday. Of note, as the hedge fund has missed the nomination deadline for directors, so it can’t force a proxy battle this year, but the letter notes the firm is considering a campaign to withhold votes from directors.

H Partners activist campaign actually began in Sept. 2013

H Partners first approached the company about a board seat back in September of 2013, months after it had closed its purchase of Sealy, the letter said.

The hedge fund noted its concerns about Sarvary at that time, though it had been sanguine on Tempur-Pedic’s performance before the Sealy deal. The letter claims that Tempur Sealy has frequently missed earnings forecasts and that it has underperformed peers. Of note, shares are up about 20% since the Sealy purchase.

In its reply, the company said the H Partners didn’t raise its concerns regarding Sarvary’s performance until the last 10 days. The statement also highlighted the more than 450% increase in share price since Sarvary took over as CEO in 2008, relative to a 67% gain for the S&P 500.

Tempur Sealy shares declined notably a week ago after the firm’s 2015 guidance fell short of expectations. 2015 sales are projected in the range of $3.05 billion to $3.15 billion and earnings guided at $2.70 to $3.10 a share. Consensus analyst estimates for Tempur-Sealy anticipated sales of $3.17 billion and earnings of $3.34 per share.

According to management, the forecast was largely due to the strengthening U.S. dollar, which has hurt revenues of almost all firms that sell products outside the U.S. Tempur Sealy came in above both revenue and earnings estimates in the fourth quarter of 2014.

Hedge Fund H Partners Management Takes Aim at Tempur Sealy