NEW YORK, April 12, 2012 /PRNewswire/ -- H Partners
Management, LLC ("H Partners"), a beneficial owner of approximately
15.3 percent of Sealy Corporation's (NYSE: ZZ) ("Sealy" or the
"Company") outstanding shares, today announced that it intends to
withhold votes for all of Sealy's director nominees at the
Company's upcoming Annual Meeting of Stockholders scheduled for
Wednesday, April 18, 2012.(1)
"Sealy's Board of Director nominees must be held accountable for
overseeing significant value destruction," said Usman Nabi, Partner at H Partners. "We
seek change that will benefit all stockholders. H Partners
has an excellent track record of collaborating with boards and
management teams to achieve strong results, and is eager to work
constructively with the Board to restore Sealy to its former
greatness."
H Partners noted that leading independent proxy advisory firms
Institutional Shareholder Services ("ISS") and Glass Lewis & Co
("Glass Lewis") both recommend that stockholders withhold votes for
multiple Sealy Directors. Both advisory firms recommend
withholding votes for director nominees Deborah Ellinger, James
Johnston, and Gary
Morin. In addition to these three directors, Glass
Lewis recommends that Sealy stockholders withhold votes for
Dean Nelson and Richard Roedel.
Gary Morin, head of Sealy's
Nominating & Corporate Governance Committee, was specifically
cited by Glass Lewis for allowing a KKR-affiliated director to
exert excessive influence. Glass Lewis stated that Sealy's
current governance is not sufficiently "pro-shareholder" because
"The Company's non-executive chairman is an affiliated director and
the Company has neither appointed an independent chairman nor an
independent lead or presiding director." Similarly, the ISS
report noted: "The chairman of the board is a non-independent
non-executive director."(2)
In addition, ISS and Glass Lewis noted potential conflicts of
interest at Sealy. ISS cautioned that "33.33% of directors
were involved in material RPTs [related-party transactions]."
Glass Lewis singled out Dean Nelson,
CEO of KKR Capstone, for his conflicts of interest:
"Nominee NELSON serves as CEO of KKR Capstone, which, along with
KKR, received approximately $1.3
million from the Company for portfolio consulting services
in the fiscal year 2011. We question the need for the Company to
engage in consulting relationships with its directors. We view such
relationships as potentially creating conflicts for directors, as
they may be forced to weigh their own interests in relation to
shareholder interests when making board decisions. In addition, a
company's decision regarding where to turn for the best portfolio
consulting services may be compromised when doing business with the
firm of one of the company's directors."
H Partners made the decision to withhold its votes for incumbent
directors only after careful consideration of Sealy's performance,
strategy and corporate governance structure. Since Sealy's
IPO in 2006, KKR-dominated boards have overseen the destruction of
$1.2 billion, or almost 90 percent,
of common equity value. H Partners believes that Sealy's
Board has:
- overloaded Sealy with debt and taken a short-term
approach;
- made numerous strategic errors resulting in an approximate 50
percent decline in earnings;
- repeatedly made questionable CEO selections;
- allowed Dean Nelson, CEO of
KKR's in-house consulting firm and a Sealy Director, to exert
excessive operational influence with no accountability for his poor
performance; and
- paid at least $20.9 million to
KKR since Sealy's IPO in 2006(3), which represents a transfer of
value from Sealy stockholders to KKR and its affiliates.
Sealy's underperformance has continued in 2012. Sealy's
domestic sales grew 0.7 percent in the fiscal first quarter of
2012, significantly below the industry's 26 percent growth during
the same period. This implies that Sealy is losing market
share at an alarming rate and may have recently lost the number one
market position it has held for decades.
Consistent with H Partners' views, Glass Lewis stated: "We
believe an entity with a significant portion of the Company's
voting power should be entitled to board representation in
proportion to its ownership interest." Based on this
principle, H Partners urges Sealy to add three directors chosen by
the 53.8 percent non-KKR stockholders. As a 15.3 percent
owner with strong qualifications, H Partners should be entitled to
add one representative to the Board. In addition, H Partners
urges Sealy to create a "Conflicts Committee" comprised solely of
independent directors.
H Partners believes that Sealy is at a critical inflection
point. The Company is searching for a CEO while its
performance continues to deteriorate. In these challenging
circumstances, it is imperative that Sealy seeks representation and
input from all stockholders.
(1) H Partners is seeking solely to inform Sealy stockholders of
its voting intentions and reasons for its opposition to the
incumbent directors. H Partners is not soliciting votes of
other stockholders.
(2) Permission to use quotations from ISS and Glass Lewis reports
was neither sought nor obtained.
(3) As mentioned in H Partners' letter dated March 27, 2012, it appears that KKR received
payments from Sealy for KKR's role as underwriter on $350 million of first lien bonds issued in
2009. However, H Partners has found no disclosure of any
payments to KKR for this underwriting role. Therefore, KKR's
potential underwriting fees are not included in the $20.9 million amount.
SOURCE H Partners Management, LLC