Law360, New York — The world’s largest bedding manufacturer, Tempur Sealy International Inc., was hit Friday in Kentucky federal court with another putative shareholder class action over its failed dealings with a large U.S. mattress retailer, alleging Tempur Sealy’s directors and officers mismanaged agreements with the retailer after it was acquired by another company.
The Tempur Sealy investors, in a shareholder derivative complaint filed by lead plaintiff Paul Onesti, accused top executive Scott L. Thompson and other defendants from the Lexington, Kentucky-based company of making recklessly misleading statements in a press release on July 28, 2016, that failed to disclose how retailer Mattress Firm Inc.’s impending acquisition by Steinhoff International Holdings NV would disrupt Tempur Sealy’s business.
“In the July 28 press release, the company failed to disclose that Mattress Firm had been engaged in active negotiations to be acquired, and its acquisition was reasonably likely to have a material adverse effect on Tempur Sealy’s operating results for the third and fourth fiscal quarters of 2016,” the investors said.
On Aug. 7, 2016, Steinhoff agreed to acquire Mattress Firm for approximately $2.4 billion, with the acquisition becoming effective on Sept. 16, according to the shareholders’ lawsuit. Prior to the merger deal, Mattress Firm had been Tempur Sealy’s largest customer, accounting for approximately 25 percent and 21 percent of the company’s overall net sales for 2015 and 2016, respectively, the suit said.
Tempur Sealy’s management also failed to disclose their discussions with Mattress Firm about modifications to long-term supply agreements between them, and that Mattress Firm sought “significant economic concessions” from the company, according to the investors, who cite a similar federal securities fraud class action lawsuit filed March 24against Tempur Sealy in the Southern District of New York.
The investors’ 63-page complaint goes on to outline additional press releases and conference calls, accusing Tempur Sealy’s officers and directors of continuing to hide their knowledge of Mattress Firm’s merger talks with Steinhoff until they revealed all in a Jan. 30 press release that caused a precipitous drop in Tempur Sealy’s stock price.
On Jan. 30, the suit alleged, prior to the opening of the market, Tempur Sealy issued a press release announcing that representatives of Steinhoff and the senior management of Mattress Firm had notified Tempur Sealy of their intent to terminate all U.S. contracts with Tempur Sealy if the company didn’t agree to “significant economic concessions” and “further considerable modifications” to the existing agreements between Mattress Firm and Tempur Sealy.
“Moreover, the press release stated that after a resolution of the matter was not able to be reached by the parties, Tempur Sealy issued formal termination notices, effective Jan. 27, to Mattress Firm for all of Tempur Sealy’s brands, and that the company expected to end business with Mattress Firm in the first fiscal quarter 2017,” the suit alleged.
On this news, according to the shareholders, the price per share of Tempur Sealy stock fell $17.70, or more than 28 percent, from its closing price on the previous day the market was open, to close at $45.49 on Jan. 30.
The suit alleges claims of breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement and waste of corporate assets.
It asks the court to award Tempur Sealy restitution from the individual defendants in a jury trial and to order the company to reform its corporate governance and internal procedures, possibly with a provision to permit the shareholders of Tempur Sealy to nominate at least four candidates for election to the board.
Representatives for Tempur Sealy and its directors and officers did not immediately respond Friday to requests for comment.
Legal counsel for the shareholders did not respond to a request for comment.
The shareholders are represented by Erik D. Peterson of Mehr Fairbanks & Peterson Trial Lawyers PLLC, Phillip C. Kim of The Rosen Law Firm PA and Timothy W. Brown of The Brown Law Firm PC.
Legal counsel information for Tempur Sealy was not available.
The case is Onesti v. Thompson et al., case number 5:17-cv-00305, in the U.S. District Court for the Eastern District of Kentucky.
The other shareholder suit is Buehring v. Tempur Sealy International Inc. et al., case number 1:17-cv-02169, in the U.S. District Court for the Southern District of New York.