Why Tempur-Pedic Shares Soared

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of mattress maker Tempur-Pedic International (NYSE: TPX  ) surged 20% today after agreeing to buy smaller rival Sealy (NYSE: ZZ  ) for about $242 million in cash and the assumption of about $750 million in debt.

So what: Tempur-Pedic shares have been crushed over the past six months on intensifying competition in the space, but today's move reignites hopes that management can regain some lost market share. Additionally, the offer price represents just a 3% premium to Sealy's closing price on Wednesday, giving Mr. Market plenty of bullish vibes over the deal.

Now what: The buyout is expected to close in the first half of 2013. "This is a transformational deal that brings together two great companies, each with globally recognized brands," said Tempur-Pedic CEO Mark Sarvary. "The shared know-how and improved efficiencies of the combined company will result in tremendous value for our consumers, retailers and shareholders." More important, with Tempur-Pedic shares still off about 60% from their 52-week high and trading at a forward P/E of 10, there's plenty of room to buy into that bullishness.  

Interested in more info on Tempur-Pedic? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of Tempur-Pedic. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.


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