Sealy Rejects Investor’s Criticism of KKR Role in Company

Sealy Corp. (ZZ), the mattress maker that is 45 percent owned by private-equity firm KKR & Co. (KKR), responded to complaints by its second-largest shareholder over KKR’s role in managing the company, calling the claims “combative” and unconstructive.

H Partners Management LLC, which owns 14 percent of Sealy, said in a March 11 letter to the company’s corporate governance committee that KKR has “overloaded” the firm with debt and made strategic errors that reduced Sealy’s earnings by half. The New York-based investor also singled out Dean Nelson, head of KKR’s consulting unit and a Sealy director since 2004, for “excessive” influence on the board.

In its letter today, Sealy said KKR “has been a responsible partner” and rejected the hedge fund’s claim that Sealy’s board has nine directors with “current or previous affiliations” with KKR. H Partners had proposed that Sealy replace three directors with new members and appoint a representative from the hedge fund.

“The board is composed of strong, highly qualified and committed members,” with five out of nine meeting New York Stock Exchange guidelines as independent, Sealy wrote. “Our board has not changed since you invested in Sealy in the spring of 2011, and its composition is sound.”

In an e-mailed statement, the hedge fund said today that “Sealy’s response fails to address the board’s and KKR’s significant role in the destruction of shareholder value at the company.”

‘Did Not Deliver’

KKR, run by Henry Kravis and George Roberts, bought Trinity, North Carolina-based Sealy in 2004 for $1.5 billion from an investment group that included Bain Capital LLC. KKR paid $5.78 a share for the bedding maker and took it public two years later for $16 a share.

Sealy’s shares have since lost 89 percent of their value, closing yesterday at $1.76 in New York trading. The stock gained 2.3 percent this year before today.

H Partners also proposed that a representative from the hedge fund be added to Sealy’s search committee for a chief executive officer, as Lawrence J. Rogers is set to retire this year after four years as CEO and 33 years at the company. Sealy said in the letter that the board is working with an executive search firm and “will pursue any qualified candidate, no matter who the source.”

“We recognize you are disappointed with Sealy’s recent performance in 2011 and we have made it clear that we did not deliver financial results in line with the goals and objectives we strove to achieve,” Sealy said. “We are focused on delivering on the strategic and operating priorities for 2012.”

To contact the reporter on this story: Devin Banerjee in New York at dbanerjee2@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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