FTC Blocks Tempur Sealy’s Acquisition of Mattress Firm

The Federal Trade Commission (FTC) recently filed a complaint in the United States District Court for the Southern District of Texas seeking a stay of Tempur Sealy’s planned acquisition of Mattress Firm. See Federal Trade Comm’n v. Tempur Sealy Int’l, Inc. and Mattress Firm Group Inc.Case No. 4:24-cv-02508 (SD Tex. July 2, 2024). On the same day, the FTC also filed an administrative proceeding in its own court seeking to block the transaction. See in the Matter of Tempur Sealy Int’l, Inc. and Mattress Firm Group Inc., Case number 9433 (FTC July 2, 2024). According to the complaints, Tempur Sealy is the largest mattress supplier in the world, and Mattress Firm is the largest mattress seller in the United States. Vertical mergers between manufacturers and retailers can often result in pro-competitive benefits, but this transaction was found by the FTC to be anticompetitive. The FTC’s primary concern appears to be that Tempur Sealy will foreclose Mattress Firm to its rivals.

In supporting the FTC’s decision to sue, Federal Trade Commissioner Melissa Holyoak said, “Despite the increased likelihood of procompetitive effects from vertical mergers, they can still result in harm in some circumstances. Consistent with these well-established economic principles, I am voting to file this complaint based on the extensive evidence generated by the staff’s in-depth investigation, especially the parties’ own ordinary documents. I have reason to believe that Tempur Sealy’s acquisition of Mattress Firm “may substantially lessen competition.” (Emphasis added.)

What exactly was in those plain documents that led Holyoak to believe the merger violated Section 7 of the Clayton Act and Section 5 of the FTC Act? The short answer is that we don’t know. The complaints, which quote extensively from some of the documents, are heavily redacted, and the documents themselves, even in redacted form, are not included in the complaints. We also wouldn’t expect the documents to be included, since they likely contain competitively sensitive information that is not typically in the public record. Rather than speculating about the documents themselves, let’s use the allegations in the FTC complaints as a reminder of how documents are used in antitrust investigations and how attorneys and clients can work together to reduce the likelihood of creating potentially problematic documents.

1. What is a “regular rate” document? As the name suggests, a regular document is one that is created by the parties in the ordinary course of their business activities. It could be a routinely issued report, an email or text message exchange between two employees, Slack messages, slide decks, board minutes, or any other form of written communication. Antitrust regulators routinely use these documents to gain insight into how the parties view each other in relation to competition, the rationale for the transaction, and how the parties view the likely competitive effects of the transaction. Often, regulators place greater emphasis on communications from senior corporate executives because these individuals may be more knowledgeable about the transaction and have greater authority to “speak” on behalf of the entity than lower-level employees. Regulators will use these documents not only to support their own theories and claims, but also to refute the parties’ advocacy of the pro-competitive aspects of the transaction.
2. How does the government obtain these routine documents? In the case of the Tempur Sealy/Mattress Firm transaction and other high-dollar transactions, the parties were required to file Hart-Scott-Rodino Merger Notification Forms (HSRs). When an HSR is required, the parties must submit documents that discuss the transaction with respect to specific topics such as competition, competitors, markets, and market shares. These documents are typically not ordinary documents in that they are created specifically for the transaction, but they are nonetheless critical in regulators’ review of potential competition issues. Documents routinely produced in the HSR process, such as confidential information memoranda (CIMs) and management presentations, may contain statements that could raise potential antitrust concerns. Clients should be aware that even the smallest items in a CIM or management presentation can potentially create big problems, as government regulators will read every page of what is sent to them. For example, suppose an HSR filing contains a 100-page presentation that is intended to serve as a management presentation, and one page of that presentation contains a sentence that says, “We (the vendor) are a dominant player in our industry and have minimal competition.” The rest of the presentation may be completely innocuous, but depending on the circumstances, that one sentence has the potential to pique the interest of regulators.

   Some transactions, such as Tempur Sealy/Mattress Firm, go through a Second Demand process after an HSR is filed. A Second Demand is a broad subpoena seeking documents and data from the parties that goes far beyond the HSR process. The Second Demand process likely uncovered the “ordinary course” documents listed in Holyoak’s affidavit. This included text messages. See e.g.Paragraph 108 of the Federal Complaint and Paragraph 99 of the Administrative Complaint. Judging by the amount of redacted material referenced in the complaints, the FTC appears to believe that there are numerous documents that present this transaction in an anticompetitive light.

   Customers should also be aware that the government’s authority to review and investigate transactions is not limited to transactions requiring HSR filings; it also includes: everyone transaction that affects competition in the United States. In addition to HSR filings, the government learns about transactions from a variety of sources, such as press reports and third-party complaints from customers or competitors. As a result, our views on document creation cover all transactions, not just those requiring premerger HSR notification.

3. Creating transactional documents is a team game. This means that attorneys and clients should work together as a team to minimize the creation of potentially damaging documents. The team should also include investment bankers and other advisors who generate transaction analysis documents. Ideally, clients will engage experienced antitrust attorneys early on to understand: 1) whether the transaction potentially raises significant antitrust concerns, such as a combination of two direct competitors; 2) whether the transaction will require HSR notification; and 3) whether HSR is required, what safeguards or best practices the client should follow. Recognizing that we do not always operate in ideal circumstances, and that attorneys may not engage until after certain documents have been created, attorneys should nevertheless remain vigilant with respect to documents from the moment they become involved in the transaction. Educating clients and their advisors on best practices for document creation is always critical.
4. What are the best practices? Lawyers should proactively educate their clients about what to say (or not say) about a deal and which words or phrases may be particularly susceptible to potential antitrust concerns. For example, words like “dominate” and “control” in reference to competition and competitors can create problems, as can market share statistics that overstate a seller’s position in a given industry. Lawyers should also review draft documents such as CIMs, executive presentations, and teasers to ensure they are free of harmful language.
5. Expect your statements to be misunderstood or taken out of context: In reading the Tempur Sealy/Mattress Firm complaints, two things are clear: 1) the government cited excerpts from the documents to support its allegations; and 2) the context of many of the statements cited is unknown. It is possible that some statements that the FTC finds important will become less important once the entire document is reviewed and the context of the statement becomes clear. Therefore, there may be other documents NO cited in the complaints that the transaction has procompetitive benefits. The allegations in the complaint are just that – allegations – and the evidence that emerges as the case progresses may or may not support those allegations. That said, the parties are wise to follow the best practices outlined above. Likewise, they are wise to avoid making exaggerated statements or statements that are intended to be humorous. These statements can be misunderstood by government regulators who do not know a particular industry or its participants as well as their clients do.
6. When creating documents, follow the general rule of “less is more.” Many transactions seem to move at lightning speed, but a moment of self-reflection can be very valuable. Ask yourself: Do I need to write this, and if so, what’s the best way to say it? Some organizations are more demanding on documentation than others, and there may be other reasons, unrelated to antitrust considerations, that require specific documentation. But in general, you’re probably creating more documents than you really need to, and more documents create potential problems. Regardless, the key is to remember that emails, texts, Slack messages, and slides can be read not only by their intended recipients, but also by government antitrust regulators.