Buyout speculation sent shares of Tempur Sealy International (TPX -0.54%) and Select Comfort (SNBR 0.30%) higher two weeks ago, but the mattress makers gave back those gains last week, after chances for the combination started to dim. It was DealReporter and Bloomberg that originally reported that Tempur Sealy was working on a bid for the company behind the Sleep Number air-chambered beds. 

Shares of Select Comfort plunged 13.9% last week, more than reversing the 12.1% gain it scored a week earlier. Tempur Sealy's stock slipped just 6% last week, but it also didn't move as high as Select Comfort a week earlier. That Select Comfort is the more volatile of the two names makes sense, as it would've been the one being acquired at a premium.  

A couple sleeping on a Sleep Number bed.

Image source: Select Comfort.

Bed bugs bite

Consolidation among mattress makers isn't new, so a combination of two prominent brands makes sense on the surface. The emergence of internet-based upstarts with significant cost advantages is eating into traditional players, particularly Tempur Sealy, for which sales declined last year and analysts are holding out for more of the same in 2017. Select Comfort is holding up better, but Wall Street still wasn't wowed by the prospects of a merger.

KeyBanc analyst Bradley Thomas argues that there would only be modest synergies in a combination. Tempur Sealy's products aren't going to be sold at Select Comfort's stores, and Tempur Sealy should be focusing on trying to overcome the sales it's missing out on since losing Mattress Firm as a retail distribution partner. 

Budd Bugatch at Raymond James also wasn't sold on the deal chatter. Select Comfort's Sleep Number beds can't be sold through conventional outlets that Tempur Sealy has access to, as the product requires more in-depth selling for its differentiated mattresses. Bugatch also echoes Thomas' concerns that Tempur's products would be an unlikely fit through Select Comfort's direct-selling model. 

Last week's sell-off, combined with Select Comfort's fetching less than it did two weeks ago, before the buyout buzz even began, makes it a compelling purchase at this point. Select Comfort's growing in an otherwise challenging environment, and it could also have a game-changing product in the new Sleep Number 360. The new mattress, billed as a smart bed, leans on intelligent biometrics to adjust the bed's firmness based on sleep quality.

Select Comfort announced last week that it will be reporting quarterly results on July 17, giving it a platform to discuss buyout chatter and, more importantly, its own products. The stock took a big hit last week, but it's too soon to call this a nightmare.