Sleep Number files for bankruptcy; aims to merge with Sleep Country Canada
Sleep Number has filed for Chapter 11 bankruptcy and entered into an agreement to combine with Sleep Country Canada.
Under the agreement, the Canadian bedding company will act as the stalking horse, or lead, bidder, in a court supervised sale. According to Reuters, the offer from Sleep Country Canada is $415 million.
The proposed transaction remains subject to higher and better offers, court approval and other customary closing conditions. Sleep Number entered bankruptcy with nearly $1.3 billion in debt.
The company expects to continue its day-to-day operations, including serving customers with its newest product, servicing warranties and delivering mattresses in homes, throughout the bankruptcy process. It also plans to continue to assemble its products in the United States following the close of the transaction.
Sleep Number, which has more than 570 locations nationwide, said it will continue the ongoing review its store footprint, with the intention of maintaining as many retail locations as possible based on profitability. A&G Real Estate Partners is assisting the company in the effort. It has filed a motion seeking court approval to reject leases associated with 44 non-operational locations that had already been closed and were not serving customers.
Sleep Number has been challenged with slumping sales amid a competitive mattress market. In March, the company launched a turnaround strategy that includes the largest product redesign in nearly a decade and its first integrated marketing campaign in years. It also has focused on cutting costs. At the the same time, the company also warned debt and liquidity issues may impact its ability to continue operations.
READ MORE: Sleep Number issues 'going concern' warning amid turnaround efforts
“While we have made meaningful progress advancing our turnaround efforts and strengthening our operations, our capital structure remains unsustainable,” said Linda Findley, president and CEO of Sleep Number. “Following a comprehensive review of our strategic options and a robust sale process, we are confident that moving forward with the Sleep Country Canada agreement and this court-supervised sale process will enable us to address our financial constraints.”
Findley said the move will also position the company to expand its business, both in the United States, and through future international expansion.
Sleep Number expects to secure up to $260 million of debtor-in-possession financing, including up to $65 million in new financing. Following court approval, this DIP financing, combined with cash generated from Sleep Number’s ongoing operations, is expected to support the business during the court-supervised process.
“We have long admired Sleep Number, its game-changing personalized sleep products and the talented team behind them,” said Stewart Schaefer, president and CEO of Sleep Country Canada. “Together, we see a tremendous opportunity to build on our complementary strengths and accelerate growth across the United States while introducing Sleep Number's innovative sleep solutions to consumers in Canada and other markets.”
