H Partners Wins Tempur Sealy Fight; CEO and Two Directors Resign

May 11 2015 | 10:13am ET

In a major win for activist hedge fund H Partners, shareholders of mattress maker Tempur Sealy voted last week to remove its CEO and two other directors from its board.

CEO Mark Savary, Chairman P. Andrew McLane and director Christopher Masto did not win election to company’s board of directors, according to the company, and thus tendered their resignations as directors on Friday.

H Parters has been leading a vocal campaign to force a change in leadership in Tempur Sealy, which was created by the 2013 merger of Tempur Pedic and Sealy Corp.

H Partners, which owns approximately 10% of the company, took issue with the company’s performance, penning a public letter in February that cited a “lack of strategic direction, poor operational execution, contracting margins, and stock underperformance” for its demands that the three directors stand down as well as Savary’s removal from his job as CEO. 

The hedge fund objected to McLane and Masto specifically because their respective private-equity firms, TA Associates and Freidman Fliescher & Lowe, bought Tempur Pedic in 2002 but neither PE firm has retained a position in Tempur Sealy. 

Although the shareholder vote was limited to his seat on the board, Savary also tendered his resignation as CEO on Monday. Chief operating officer Timothy Yaggi will serve as interim CEO until a replacement is found. 

H Partners is reportedly already speaking with a number of potential candidates. 

Four independent proxy firms, including Institutional Shareholder Services, backed H Partners’ agenda, which was unusual in that it did not offer nominees to replace the three men. H Partners had previously stated it has a number of candidates in mind, including its founder Usman Nabi.

The company named Nabi as an independent director on Monday, and will add another independent director suitable to both the company and H Partners. In connection with the changes, H Partners has agreed to a standstill agreement that precludes it from pursing further activist efforts against the firm.

The company’s shares gained more than 3% following the shareholder vote announcement, and have gained 13% so far this year, according to Bloomberg, after years of underperformance. 

The victory is the one of the most conspicuous in a string of wins for activist investors, occurring only a few months after H Partners changed its status to “activist” in securities filings and began agitating for the changes. 

“We thank Tempur Sealy’s shareholders for supporting our campaign for leadership change,” said Nabi in a statement. “I am pleased to join the Tempur Sealy board, and look forward to collaborating with the Board and management team to help the company reach its full potential.”

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