Sleep Number has filed for Chapter 11 bankruptcy protection and entered into an agreement that would combine the company with Sleep Country Canada, creating what executives describe as a leading North American mattress and bedding business.
The company announced this morning that it has initiated a voluntary Chapter 11 sale process in the U.S. Bankruptcy Court for the Southern District of New York. As part of that process, Sleep Country Canada will serve as the stalking horse bidder in a court-supervised sale.
The proposed transaction remains subject to higher and better offers, court approval and other customary closing conditions. Sleep Number executives said the company expects to continue normal operations throughout the restructuring process.
“For 40 years, Sleep Number has been a leader in sleep innovation, helping millions of customers improve their health and well-being through personalized sleep solutions,” said Linda Findley, president and CEO. “While we have made meaningful progress advancing our turnaround efforts and strengthening our operations, our capital structure remains unsustainable.”
The filing marks a turn for one of the bedding industry’s most recognizable brands and comes amid an ongoing wave of consolidation across the mattress category. The company lists assets of between $500 million to $1 billion, and liabilities of between $1 billion and $10 billion.
Sleep Number said it expects to secure up to $260 million in debtor-in-possession financing, including up to $65 million in new financing, to support operations during the court-supervised process. The company said the financing, combined with cash generated through operations, is expected to provide sufficient liquidity while the sale process moves forward.
The company also sought to reassure customers and retail partners that business will continue as usual. Sleep Number stores remain open, its e-commerce platform continues to accept orders, and the company’s connected smart bed infrastructure and mobile app will remain operational.
The company has been working to improve performance through a broad turnaround strategy that included the largest product redesign in nearly a decade, the launch of a new integrated marketing campaign and efforts to reduce costs and improve profitability.
Findley said the agreement with Sleep Country Canada emerged following a review of strategic alternatives and a sale process designed to address the company’s financial challenges.
“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,” she said. “It will also position us to expand our business, helping more people achieve their best sleep both in the United States, and through future international expansion.”
For Sleep Country Canada, the transaction provides an opportunity to add Sleep Number’s proprietary smart bed technology and sleep wellness platform to its portfolio while expanding its presence in the U.S. market.
“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.”
As part of the restructuring process, Sleep Number said it will continue evaluating its retail footprint. The company 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.
The company said its goal is to maintain as many retail locations as possible based on profitability.