Sealy Faces Governance Criticism From Second Stakeholder

Sealy Corp. (ZZ), the mattress maker that is 45 percent owned by private-equity firm KKR & Co. (KKR), is facing criticism from a second major shareholder over KKR’s role in managing the company.

FPR Partners, a San Francisco-based investment firm whose 7.7 percent stake makes it the third-biggest owner, said in a letter to the chairman of the company’s nominating and corporate governance committee that KKR’s governance role should be “very different” than it is. KKR bought Trinity, North Carolina-based Sealy in 2004 and took it public two years later.

“A 46 percent ownership stake in a public company should lead to very different governance than 100 percent ownership of a private company,” FPR said in the letter dated yesterday and filed with U.S. regulators today. “We believe strongly that all shareholders of a public company have a place in governing the company they own.”

Sealy has been responding to governance complaints since earlier this month. H Partners Management LLC, a New York-based hedge fund that owns 15 percent of Sealy, said in a March 11 letter that KKR “overloaded” the bedding maker with debt and made strategic errors that reduced its earnings by half. FPR, run by managing directors Bob Peck and Andy Raab, said it was “disappointed and perplexed” by the company board’s response to questions raised by Sealy’s second-largest shareholder.

Sealy called the claims “combative” and unconstructive. In a March 23 letter, the company said KKR “has been a responsible partner” and said the board’s composition meets New York Stock Exchange guidelines for independence.

Lost Value

“Through the leadership of management and under the guidance of the board of directors, we remain committed to delivering long-term shareholder value and continue to be open to constructive dialog with all of our shareholders,” Chris Beattie, a spokesman for Sealy at Brunswick Group LLC, said in an e-mailed statement today.

KKR, run by Henry Kravis and George Roberts, acquired Sealy for $1.5 billion from an investment group that included Bain Capital LLC. The buyout firm paid $5.78 a share for the mattress maker and took it public for $16 a share.

The shares have since lost 87 percent of their value, closing at $2.02 today, up 1 cent, in New York trading. The company has gained 17 percent this year after reporting that net income in the first quarter ended Feb. 26 rose to $1.6 million from $130,000 a year earlier.

Both FPR, which manages more than $1 billion, and H Partners have proposed that Sealy replace some members of its board. H Partners said in a March 27 letter to directors that it plans to withhold support for incumbent members “if you fail to comply with our demands.”

Gary E. Morin, chairman of the nominating and corporate governance committee, responded by saying the board is composed of “strong, highly qualified and committed members.”

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