In a high-stakes showdown, the Federal Trade Commission (FTC) is contesting Tempur Sealy International Inc.’s $4 billion intended acquisition of Mattress Firm, citing risks to competitive balance in the mattress market. As the trial opened in the US District Court for the Southern District of Texas, the FTC alleged that the merger would empower Tempur Sealy to marginalize competitors, leveraging Mattress Firm’s extensive retail reach across approximately 2,300 locations in the US.
The trial represents one of the last major tests for the FTC under the stewardship of Lina Khan. Khan, noted for her aggressive stance on antitrust issues, championed a policy agenda prioritizing litigation over settlements. Her tenure has included efforts to block mergers that might limit marketplace competition, and she is expected to leave office in early 2024.
The FTC’s argument hinges on the potential for the merger to disrupt the market for premium mattresses, causing price inflation and reducing consumer choice. Tempur Sealy executives had previously identified Mattress Firm as a key player capable of swaying market dynamics. FTC counsel Allyson Maltas emphasized that the move to block the deal is based on protecting competitive market practices, rather than external pressures from rival companies.
Supporting the FTC’s position, Purple CEO Robert DeMartini expressed concerns over the merger during testimony, fearing the combined entity would wield excessive power. However, Tempur Sealy’s legal team, represented by Ryan Shores of Cleary Gottlieb Steen & Hamilton LLP, refuted these claims, arguing that competitors account for less than 10% of Mattress Firm’s premium mattress sales. The legal team characterized the FTC’s stance as speculative, potentially setting a precedent that could impact other vertical mergers, which involve companies at different stages of production rather than direct competitors.
The trial echoes previous cases under Khan’s FTC, including the notable case blocking Illumina Inc.’s acquisition of Grail Inc., which successfully argued the risks posed by vertical integrations. While the FTC maintains its commitment to preventing potentially harmful mergers, its track record has been mixed. The FTC lost its initial bid earlier in 2023 to halt Microsoft’s purchase of Activision Blizzard, which is currently under appeal.
Tempur Sealy and Mattress Firm, represented by Simpson Thacher & Bartlett LLP, have argued in favor of the merger, suggesting potential reductions in operational costs and enhanced innovation. The companies have also offered to divest over 100 retail locations in a bid to alleviate the FTC’s concerns.
The outcome of this trial may serve as a bellwether for the enforcement of vertical mergers as the regulatory landscape potentially shifts with changes in the leadership of the FTC. (Bloomberg Law)