Tempur Sealy: Reinvigorating Leadership For Long-Term Success by H Partners Management.
“Getting rid of mediocre CEOs…requires action by owners…acting together, [they] could effectively reform corporate governance at a given company, simply by withholding their votes for directors…”
– Warren E. Buffett
Tempur Sealy – Introduction
H Partners: A Long-Term Value Investor and Tempur Sealy’s Largest Shareholder Is Calling For Change
Our History with Tempur Sealy
- Largest shareholder of Tempur Sealy, with ~10% stake
- Invested in Sealy in 2011, and invested in Tempur Sealy in 2012
- Advocating vote “AGAINST” three directors whom we believe are most responsible for significant underperformance and corporate governance failures
H Partners’ Background
- Founded in 2005, manage $1.5 billion
- Our goal is to generate exceptional long-term returns
- Current portfolio average holding period of 6 years
- History of constructive engagement with portfolio companies
Concentrated Portfolio
- Only 5 to 10 investments at any one time
- Our high degree of concentration demands sharp focus and intensive diligence on each investment
- Over 20% of AUM invested in Tempur Sealy
Strong Track Record and Alignment
- Since inception, compounded at 30% vs. 8% for the S&P 500
- H Partners on a Board: 490% return at Six Flags after H’s Usman Nabi was appointed Executive Chairman, and then Chair of N&G
- Aligned with all shareholders; took no board fees at Six Flags
Tempur Sealy Has Tremendous Potential…
Best-In-Class Products
Best-In-Class Brands
- Tempur-Pedic: #1 U.S. Brand People are Most Interested in Purchasing
- Sealy: #1 U.S. Brand People are Most Likely To Buy
Best-In-Class Employees
- Over 7,000 talented and dedicated employees
- Tempur Sealy teams develop the most innovative products in the industry
Tempur-Pedic Is the Crown Jewel
- Prior to Mr. Sarvary’s arrival, Tempur segment’s business model resembled consumer branded companies like Tiffany, Tumi, etc.
- $1.5 billion in ad spend over last ten years should result in pricing power and high margins
Consolidating Industry
- Following the combinations of Serta with Simmons in 2012 and Tempur-Pedic with Sealy in 2013, these two mattress sector participants command 70% market share
Stock Underperformance
- Tempur Sealy has underperformed its self-selected peers by 140% over the last three years and 175% over the last five years
- Returns consistently rank in bottom quartile vs. Company’s self-selected peers
Weak Financial Results & Execution Errors
- Long-term earnings estimates have been reduced by 60% in past three years
- Execution errors in each quarter for past three years; mistakes in every functional category
- Missed earnings estimates in six out of last seven quarters since acquiring Sealy
Poor Corporate Governance
- No ability to call special meeting or act by written consent; supermajority vote provision
- We believe Board leaders McLane and Masto pursue personal agendas, and that the Board may have failed to disclose a Related Party Transaction
Long-Tenured Shareholder Supports Our View
- Chieftain Capital Management, an approximate 6% shareholder and major investor in the Company since 2010, filed a 13D on February 23, 2015 in support of H Partners’ proposals
“We believe that H Partners’ views and suggestions have considerable merit. The current management team has consistently missed its quarterly, annual and long-term goals (despite repeatedly resetting these goals). They have made missteps in operations, product development and introductions, marketing, and the formulation of strategy.” Chieftain Capital Management’s Letter to Tempur Sealy’s Board, February 19, 2015
“Chieftain thus supports H Partners’ call for an immediate change in the CEO and Board. We also support a role for H Partners on the Board. H Partners would add considerable value…” Chieftain Capital Management’s Letter to Tempur Sealy’s Board February 19, 2015
We Believe Other Investors Also Desire Change
- The stock has gained almost 20% since H Partners’ and Chieftain’s 13D filings
H Partners’ interests are fully aligned with the interests of all Tempur Sealy shareholders; numerous concerned shareholders have called us to express support for our proposals
Stock Underperformance
Significant Underperformance Over the Last One, Three and Five-Year Periods
- Tempur Sealy has significantly underperformed the S&P 500 Index, mattress sector peers Select Comfort and Mattress Firm, and the Company’s selfselected peer group
- Periods look back from Feb. 9, 2015, the day before H Partners filed its 13D
See full PDF below.