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H Partners demands immediate changes at Tempur Sealy

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H Partners seeks CEO replacement at Tempur Sealy

In its latest 13D filing with the SEC (U.S. Securities and Exchange Commission), H Partners Management LLC disclosed a 10% stake in Tempur Sealy International Inc. (TPX). Tempur Sealy is currently the world’s largest bedding provider.

The activist hedge fund said it’s seeking an immediate removal of Mark Sarvary, CEO (chief executive officer) of TPX, due to the company’s disappointing financial performance. In a letter to the Tempur Sealy board of directors, H Partners said the company’s stock has “underperformed the company’s mattress sector peers and the S&P 500 Index.”

The fund also noted in the letter that it has been a long-term shareholder and has held a stake since 2012. H Partners sought a board seat at TPX to spearhead the search for a new CEO but said its requests were blocked.

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TPX management responded, “The Tempur Sealy Board and management team strive to maintain constructive, ongoing communication with our shareholders.” The company further backed its CEO and executive leadership saying it’s “confident that the company is well positioned to continue to drive enhanced returns for all shareholders.” TPX also noted an “approximately 450% increase in the company’s stock since Mark Sarvary joined as CEO.”

Chieftain Capital also demands change

H Partners isn’t the only activist fund seeking change at TPX. John Shapiro’s investment firm Chieftain Capital Management also filed a 13D on TPX. The fund revealed a 5.78% stake in the company with more than 3.51 million shares. It also pushed for a CEO replacement and noted that TPX “consistently missed its quarterly, annual and long-term goals (despite repeatedly resetting these goals). They have made missteps in operations, product development and introductions, marketing, and the formulation of strategy.

About H Partners

H Partners Management LLC is an activist hedge fund founded by Rehan Jaffer in 2005 and headquartered in New York City. The hedge fund has more than $1 billion in assets under management. H Partners has generated an annualized return of 30% compared to 8% for the S&P 500 Index.

According to its latest 13F filings, H Partners has a portfolio of more than $1.2 billion for the fourth quarter of 2014, up from $1.09 billion in the third quarter of 2014. The hedge fund has five stocks in its portfolio, namely Tempur Sealy International (TPX), Six Flags Entertainment Corp. (SIX), W.R. Grace & Co. (GRA), Remy International (REMY), and Boyd Gaming Corporation (BYD).

TPX has an exposure of 2.97% to the SPDR S&P Homebuilders ETF (XHB). The ETF tracks the overall performance of 37 publicly listed companies in the real estate sector.

In the next article in this series, we’ll take a closer look at H Partners’ letter to Tempur Sealy and the issues Tempur Sealy faces.

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