Tempur Sealy and Mattress Firm Defeat FTC Preliminary Injunction in $5 Billion Deal

Cleary Gottlieb represented Tempur Sealy International Inc. (Tempur Sealy) at trial in the U.S. District Court for the Southern District of Texas in defeating the Federal Trade Commission’s (FTC) lawsuit seeking a preliminary injunction against Tempur Sealy’s $5 billion acquisition of Mattress Firm Group (Mattress Firm).

Contrary to the FTC’s allegations that “millions of Americans would likely face higher prices, lower quality, and fewer choices,” the court found that the acquisition is “either neutral or procompetitive” and “in the public interest.”

The Commission voted unanimously to challenge the acquisition in summer 2024. The FTC filed its complaint on July 2, 2024, alleging that the acquisition would combine the largest mattress supplier in the world with the largest mattress retailer in the country, in violation of Section 7 of the Clayton Act and Section 5 of the FTC Act. The FTC argued that Tempur Sealy would be able to foreclose rival manufacturers from selling at Mattress Firm, or otherwise hinder rivals’ ability to sell through the retailer, and this would substantially lessen competition. The FTC also alleged that the merger would lessen innovation and cause other competitive harms.

After an intense, accelerated discovery period, trial began on November 12 and ended on November 25, 2024, with Cleary partner and lead trial counsel Ryan Shores delivering closing argument for the defendants on December 16, 2024.

On January 31, 2025, U.S. District Judge Charles Eskridge denied the FTC’s motion for a preliminary injunction. The decision, issued on the final day of Lina Khan’s tenure at the FTC, is a blow to the Biden Administration’s efforts to push back on vertical mergers. Among other things, the court found that the FTC failed to establish a relevant geographic market, a relevant product market for “premium” mattresses retailing for at least $2,000, and that even if the FTC had established a relevant antitrust market, “any potential foreclosure won’t lead to anticompetitive effects in this very competitive market.” The court’s determinations regarding the market were informed in large part by testimony from the cross examination of a witness from Sleep Number, conducted by Cleary partner Blair Matthews, demonstrating that $2,000 was not a widely accepted cutoff for premium mattresses and that there are many channels for mattress retail.

The court also found that even if there were “lingering concerns,” Tempur Sealy’s commitments to divest stores to Mattress Warehouse and to preserve a large portion of Mattress Firm’s floor for rival manufacturers were “sufficient to prevent the merger from inflicting any substantial harm to competition.”

A cornerstone of the FTC’s case was testimony from Serta Simmons that the transaction was an “existential threat.” On cross examination, however, Cleary partner Heather Nyong’o elicited testimony demonstrating that those claims contradicted statements Serta Simmons had made to a bankruptcy court predicting sales growth at Mattress Firm after the deal was announced. Given the inconsistency, the court concluded that Serta Simmons’ testimony about supposed harm “came with no credibility whatsoever and cannot stand as factual support for any contention by the FTC in this action.” The court also accepted the testimony by Tempur Sealy’s CEO that Serta Simmons had been unreasonable in the demands it attached to a potential post-closing supply agreement for Mattress Firm.

The FTC also put forth an economic model attempting to demonstrate that the transaction would result in total consumer harm of $280 million. On cross examination by Cleary partner Dan Culley, the FTC’s expert was forced to acknowledge that his methodology was simply to “put the numbers in the model and then just see what comes out” and that he could not otherwise explain why downward pricing pressure from elimination of double marginalization—a standard benefit of vertical mergers such as this one—did not predominate. The court found that the expert’s testimony “doesn’t exactly inspire confidence that he accounted for the market and commercial realities of the situation.” Instead, the court credited the defendants’ expert (also examined by Dan) who explained that once those realities were accounted for, the FTC’s own model showed that rival manufacturers would have greater sales through Mattress Firm post-transaction and consumer welfare would increase by nearly $900 million.

The FTC declined to seek an injunction pending appeal, allowing the acquisition to close on February 5, 2025. The Part 3 proceeding remains pending before FTC Administrative Law Judge Jay Himes. Separately, the merging firms filed a lawsuit in the Southern District of Texas challenging the constitutionality of that administrative proceeding.