When TSI announced plans to acquire Mattress Firm, there was a common misconception that the deal had already gone through.
It hasn’t and the acquisition is expected to be finalized in early 2024. However, during a press conference call with CEO Scott Thompson after the announcement, he said the company has already been in talks with the FTC about the deal.
But there are still several potential roadblocks TSI could face before then, and we spoke with two lawyers familiar with the legal side of mergers and acquisitions and the FTC to learn what obstacles TSI could face over the next six months.
Bob Singer and Ian MacSween are partners at the law firm Brooks Pierce. Singer has over 40 years of experience representing financial institutions and public companies on key legal issues, and MacSween represents business and corporate clients in mergers and acquisitions, among other things.
MacSween says that shareholder approval is usually the hardest and earliest roadblock to overcome. And because TSI has already cleared it — and had it cleared before announcing the move — it is one step in the right direction.
However, things become complicated when you consider that TSI also has retail locations, meaning the merger is both horizontal — occurring between two companies producing the same or similar product — and vertical — a merger between two businesses that operate in different stages of production in the same industry.
“Horizontals are more consumer sensitive because you’re taking two producers that produce the same commodity or product and reducing the number of players in that market,” Singer says. “So that theoretically has some impact on consumer pricing; there’s less competition in the market. And vertical should be less of a problem for the FTC and the Department of Justice, because it’s like Amazon buying a downstream service provider that theoretically doesn’t reduce the options available to consumers.”
Singer also explains that the FTC recently put out a notice saying that it’s going to “scrub mergers, particularly large entity mergers,” and that this is in part due to Lina M. Khan, the new head of the FTC.
“She’s not as concerned with if it’s horizontal or vertical, but she doesn’t like large mergers,” Singer says. “She’s a hard progressive side of antitrust. However, there were several large mergers in the last six months that went through even though the FTC opposed them. If they refuse to approve it, they can condition it, which means they can go into a review process which they can make live forever — months, years or until either party gives up or runs out of money.”
Here are a few other things that could delay the deal:
- State attorneys general, who also have some authority in the antitrust area under state statutes, can sometimes jump in. Singer says they have less power but they can still “corrupt the process” by slowing it down or delaying it.
- A derivative action could also be filed by the shareholders of the target, saying they’re not getting enough money, the process was flawed, and so forth. “However, derivative actions are harder to make state because most states let you take it before a special committee of independent directors and shut it down,” Singer says.
MacSween says it’s likely that the FTC will try to make some changes to the transaction, though no one can say what exactly they will be just yet. One potential and likely situation, however, may involve TSI selling off some or all of its retail stores to make the deal completely vertical and more appealing to the FTC.
Ultimately, there aren’t any immediate roadblocks that could stop this deal dead in its tracks, but it will be interesting to see how the FTC views the transaction and its potential effects on the mattress industry.
Stay tuned to Bedding News Now for more information on the acquisition as it’s announced.