Wholly Owned Subsidiary of Zell/Chilmark Fund Limited
Incorporated: 1912 as Ohio Mattress Co.
Sales: $623.9 million (est.)
SICs: 2515 Mattresses & Bedsprings; 6719 Holding
Sealy Inc. evolved from a loose amalgamation of licensees into the world’s largest mattress manufacturer during the mid–twentieth century. In 1993 Sealy commanded nearly 23 percent of the bedding market, almost as much as its next two competitors combined. Of Sealy’s three main rivals in the $2.3 billion industry, Serta and Spring Air are licensee groups and Simmons is a national manufacturer.
Sealy was established as a licensing organization in Chicago in 1882. The company’s licensees owned all the Sealy Inc. stock, and leaders of the individual affiliates comprised Sealy’s board of directors. Sealy’s decentralized organizational structure evolved from the nature of mattress production and distribution, with the size and weight of mattresses inhibiting both shipping and storage. Sealy licensees agreed to limit themselves to exclusive territories of 200 miles in radius, which were contractually protected from competition with other dealers. (The territories were later expanded to 300 miles as transportation methods improved.) Sealy affiliates gave the Chicago company royalties in exchange for national and cooperative brand advertising, access to research and development undertaken by the central organization, and quality control guidelines. The decentralized organizational structure used by Sealy in the 1880s was still in use by the majority of mattress companies in the United States in the late twentieth century.
In 1907 Morris Wuliger, a Hungarian immigrant, established Ohio Mattress Co. in an abandoned church. The company bought its first Sealy license in 1924, when Frank Wuliger, son of the founder, inherited the presidency of Ohio Mattress. The Sealy name gave the Ohio company permission to use what had become the most recognized name in the industry. In 1939 Frank called his son, Ernest, home from his second year of classes at the University of Chicago to help run the family business. Ernie Wuliger—who once told an interviewer that he was “born to sell mattresses”—was soon recognized as an authority in the bedding industry. By the time he was 35, he was serving as chairman of Sealy’s national advertising committee.
From 1951 to 1955, the annual sales of Ohio Mattress quadrupled from $1.5 million to over $6 million, and by 1956, the company was the largest of Sealy affiliates in the United States and Canada, which numbered more than 30. In 1956 Ohio Mattress acquired the Sealy Mattress Co. of Houston, Texas, signaling the start of Wuliger’s push to dominate the Sealy organization and the mattress industry.
Ernest Wuliger succeeded his father as president of Ohio Mattress in 1963, and dedicated his $7–million–a–year company to several ambitious goals: surpassing $100 million in annual sales, national expansion, and a listing on the New York Stock Exchange. The declaration launched a quarter–century battle that stretched from the Sealy territories to the United States Supreme Court.
In defiance of the exclusive territory clauses, the maverick licensee launched intra–brand competition within other Sealy licensees’ territories, undercutting their prices and squeezing their profit margins until they sold out to him. Very often, however, the threatened licensees appealed to Sealy to invoke and exercise a “right to first refusal.” The clause allowed Sealy to acquire several endangered affiliates, thereby blocking Wuliger and gaining additional revenues. In 1960 the Justice Department had charged Sealy Inc. with two antitrust violations related to price fixing and the exclusive territories. Seven years of appeals brought the case before the Supreme Court in 1967, when justices ultimately found Sealy in violation of the Sherman Antitrust Act. Rather than changing their illegal business practices, Sealy simply renamed the offending clauses, retaining their content and requirements.
In 1970 Ohio Mattress became the only publicly held mattress manufacturer in the United States. Its initial public offering raised money for further expansion, and Wuliger changed the growing company’s name to Ohio–Sealy Mattress Mfg. Co. One year later, Ohio–Sealy brought its first lawsuit against the licenser, charging that it had not stopped its anti–competitive practices. The case came to court in 1974, and within four months, a jury ruled in favor of Ohio–Sealy and awarded it triple damages of $20.4 million. Appeals and a 1975 settlement with Sealy Inc. earned Ohio–Sealy $13 million, but its battle had just begun.
Wuliger tenaciously fought Sealy for over a decade, winning a final judgment of $77 million in 1986. He forgave the damages in exchange for the right to acquire eight remaining licenses, and thereby gain full control of Sealy Inc. One holdout, Sealy Mattress Co. of New Jersey, filed suit to block Ohio Mattress, but gave in before the end of 1987. Wuliger borrowed $250 million to finance his purchases, then pared that debt down to about $75 million with the proceeds of an offering of four million new shares.
In the meantime, Wuliger had also shored up Ohio–Sealy’s position in the larger bedding industry with the 1983 purchases of Monterey Mfg. Co., a leading waterbed manufacturer based in Los Angeles, and Lifetime Foam Products, a bedding manufacturer previously owned by Sears, Roebuck & Co. Ohio–Sealy also acquired a furniture and waterbed frame manufacturer, TrendWest furniture.
In December 1983 Wuliger also acquired Stearns & Foster, a prominent mattress brand, helping him to achieve two of his coveted goals. The Cincinnati–based firm cost Ohio–Sealy $52 million in cash and stock, but gave Wuliger complete control of a prestigious national brand and helped catapult his company (which subsequently reassumed its traditional Ohio Mattress Co. name) over the $100 million mark. Sales more than doubled, from $98 million in 1983 to $251 million in 1984, earning Ohio Mattress a spot on the New York Stock Exchange. Wuliger set out immediately to energize the 136–year–old Stearns & Foster brand, launching the label’s first national advertising campaign since 1909. The $4 million budget was largely spent on ads in such high–end shelter magazines as Bon Appetit, Metropolitan Home, Gourmet, Town & Country, Architectural Digest, House Beautiful, and others. The brand’s slogan, “You’ve earned a Stearns & Foster,” was targeted toward the prosperous consumer.
In 1989, less than two years after gaining control of the world’s largest mattress brand, 67–year–old Ernest Wuliger suffered a heart attack and subsequently announced his intention to sell Ohio Mattress. Some observers maintained that “the vision of his own mortality caused the decision,” but according to Barbara Solomon of Management Review, Wuliger said he was motivated by the realization that “people would pay exorbitant amounts for companies with consumer franchises.” Indeed, although Ohio Mattress was valued at $427 million late in 1988, merchant banker Gibbons Green van Amerongen paid more than twice that amount, $965 million, to take the company private in 1989.
The new owners kept Wuliger on as chair and CEO, and appointed Malcolm Candlish as chief operating officer and president. But Wuliger—along with many of his top managers—resigned less than three months after the deal was completed, “angrily proclaiming he was being ignored,” as Plain Dealer analyst Marcus Gleisser reported in 1993. Wuliger’s abrupt exit—as well as the company’s 1990 assumption of the Sealy Corp. name—signaled the firm’s shift from an entrepreneurial operation to a modern, consolidated corporation. Nonetheless, Candlish vowed in a 1990 interview with Barbara Solomon for Management Review ” to retain as much as we can of what is good about being an organization of licensees, and we will complement it with all the advantages of being a national company.”
Unfortunately, Gibbons Green van Amerongen’s highly leveraged (and overpriced) buyout was also rather poorly timed. The firm tried to float $475 million in unsecured debentures, or junk bonds, just as that market collapsed under the weight of numerous defaults and bankruptcies. While the new owners scrambled to finance their purchase, they relied on a high–interest “bridge loan” from First Boston Corp. to pay for the privatization. This sticky financial situation earned Sealy the nickname “the burning bed,” according to a May 1990 article in Business Week. Without a market for its junk bonds, Gibbons Green van Amerongen was soon compelled to exchange First Boston’s debt (which was held by an affiliate, the Clipper Group) for a 40 percent equity stake in Sealy.
In spite of this overarching financial predicament, CEO Candlish was able to prune corporate expenses, keep up with interest payments, and increase revenue by 6.2 percent to $702.3 million. The new leader closed more than one–third of Sealy’s 38 plants and opened three new, more efficient plants in strategic locations. Candlish standardized production and centralized some purchasing to take advantage of the company’s new–found national buying power. He hoped to save $30 million annually through these cost–cutting measures. The divestment of surplus real estate and a subsidiary helped pay down some debt as well. In mid–1990, Sealy also invested in its biggest advertising campaign ever. The national effort spent about $ 11 million on prime–time television spots prepared by Leo Burnett Co.
In 1991 the Clipper Group swapped its $400 million in Sealy junk bonds for an additional 53.6 percent of the mattress–maker’s equity, effectively buying out Gibbons Green van Amerongen. The deal cut Sealy’s debt from $890 million to $490 million (mostly bank debt), and reduced the company’s annual interest expense by half, to $56 million. This ownership transition soon led to a leadership transition. In 1992 Candlish announced that he would leave Sealy by year’s end, citing conflicts with the new board, dominated by First Boston. In August 1992, Candlish told the Plain Dealer that “since a change of boards following the financial restructuring, there has been a change in management philosophy that has not sat with me as well as the previous philosophy.”
Sealy brought in Lyman M. (John) Beggs to succeed Candlish before the end of the month. Beggs’s experience included work with such global consumer products companies as Procter & Gamble Co., Del Monte Corp., Tambrands, Inc., and Norelco Consumer Products Group. The Clipper Group’s ownership of Sealy was generally viewed as a transitional investment scheme, and in 1993, the firm sold its 94 percent stake for $250 million to Zell/Chilmark Fund Limited Partnership of Chicago.
Sealy Inc.; Stearns & Foster Bedding Co.; Stearns & Foster Upholstery Furniture Co.; Advanced Sleep Products; International Monterey S.A. de C.V. (97.3%); Woodstuff Manufacturing Inc.; Sealy Mattress Company of San Diego; Sealy Mattress Co.; Sealy Mattress Company of Puerto Rico; Ohio–Sealy Mattress Manufacturing Co., Inc.; Ohio–Sealy Mattress Manufacturing Co., Fort Worth; Ohio–Sealy Mattress Manufacturing Co.; Ohio–Sealy Mattress Manufacturing Co., Houston; Sealy Mattress Company of Michigan Inc.; Sealy Mattress Company of S.W. Virginia; Sealy Connecticut Inc.; Sealy Mattress Company of Kansas City Inc.; Sealy of Maryland & Virginia; A. Brandwein & Co.; Sealy Mattress Company of Albany Inc.; Sealy of Minnesota Inc.; Sealy Mattress Company of Memphis; Ohio Mattress Company Licensing & Components Group; Sealy Mattress Manufacturing Company Inc.; Sealy Canada Ltd.; Gestión Centurion Inc.; Mátelas Centurion Inc.
Andresky, Jill, “Mattress Wars,” Forbes, Vol. 139, June 15, 1987, p. 41.
Brunton, David, “Mattress–Making Company Is Anything but Somnolent,” Plain Dealer, January 27, 1985, p. 4C.
Gerdel, Thomas W., “Mattress Maker Is on Top,” Plain Dealer, October 3, 1987, p. 10A.
Gleisser, Marcus, “Sealy Chairman Trying to Liven up Old Family Firm,” Plain Dealer, June 12, 1990, pp. ID, 9D.
_____, “First Boston Taking Control of Sealy,” Plain Dealer, September 20, 1991, p. 1F.
_____, “New Chief Executive Named at Sealy Inc.,” Plain Dealer, August 25, 1992, p. 1G.
_____, “Chicago Partners Buy Stake in Sealy,” Plain Dealer, January 28, 1993, p. 1F.
Mallory, Maria, “Ohio Mattress Gets the Lumps Out at Last,” Business Week, May 7, 1990, pp. 127–128.
Sabath, Donald, “Mattress Company Financially Firm,” Plain Dealer, November 9, 1980, p. 1E.
_____, “No Sagging for Ohio Mattress,” Plain Dealer, September 25, 1984, p. ID.
“Sealy Here Acquires Operation in Texas,” Plain Dealer, 1956.
Solomon, Barbara, “Bed Wars: A Sealy Licensee Causes Sleepless Nights,” Management Review, Vol. 79, December 1990, pp. 50–53.
—April Dougal Gasbarre