Building Products - Sleep Number (SNBR) Potential Bankruptcy Filing Could Draw Strong Interest Including SGI

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Building Products - Sleep Number (SNBR) Potential Bankruptcy Filing Could Draw Strong Interest Including SGI

ve, the company still generates positive cash flow.

SNBR's issue in our view has been a long-term trend of (1) pushing price points

to stratospheric levels which has limited units in a company that is at least in part

a manufacturer; (2) maintaining a large store base not needed at this price point

thus burdening margins even more; and (3) and use of exclusively short-term debt

to repurchase shares particularly during the post COVID surge of buying. We see

a number of ways this company could be improved and thus driving the interest to

purchase in a potential bankruptcy (where store leases become void).

Could SGI Purchase? Note Somnigroup (SGI, Buy) is currently pushing to close its

deal for Leggett & Platt (LEG, Hold) thus doing another acquisition of size would create

some challenges. However, given the use of stock in the LEG deal and depending

upon the purchase price of SNBR, it could be possibly doable with debt. Questions on

the possibility would again include how high the bidding goes, whether management

feels they can take on another integration (albeit very different than LEG) and most

importantly would this trigger regulatory scrutiny. The sticking point that SGI had to

overcome with the Mattress Firm deal was its significant market share at the high-end

retail market in the mattress industry. A potential deal for SNBR would most likely be put

to similar scrutiny, albeit with a different administration and a product that sits somewhat

in a silo from the rest of the industry.

Recent Restructuring Has Bought Some Time But Likely Too Little Too Late. The

company entered into an agreement earlier this year with Guggenheim (private) to