WASHINGTON, Feb. 6, 2025 -- In a proposed $5 billion merger between the world's largest mattress supplier and the US's largest retail mattress chain, a Brattle team led by Principal Dr. Jeremy Verlinda provided economic analyses and supported expert testimony on behalf of Mattress Firm regarding the competitive effects and procompetitive efficiencies that could arise from the planned merger.
Mattress manufacturing leader Tempur Sealy first announced its plan to purchase retailer Mattress Firm in May 2023. The deal was opposed by the US Federal Trade Commission (FTC), which alleged that the vertical merger would suppress premium mattress competition by foreclosing rival manufacturers, and thus raise mattress prices for consumers. Following an extensive trial, a US District Court Judge denied the FTC's motion to stop the acquisition. The deal closed on February 5, 2025.
Brattle was retained by Simpson Thacher & Bartlett to provide economic analyses and support throughout the FTC's investigation and subsequent litigation. The Brattle team conducted analyses related to product market and geographic market definition, vertical effects and efficiencies, and divestiture and remedy analysis. Brattle also assisted Mattress Firm with Second Request production and discovery during the FTC investigation and litigation.
In July 2024, the FTC sought a preliminary injunction in federal court in the Southern District of Texas to halt the acquisition while the commission pursued its administrative court proceeding. Brattle supported Mattress Firm before the Texas court, where the merging parties presented evidence and testimony demonstrating that the FTC's expert's economic analysis was flawed, relied on unsupported assumptions, and did not provide a reliable basis on which one could conclude that the merger would lead to foreclosure of Mattress Firm store access and floorspace to rival mattress manufacturers.
US District Judge Charles Eskridge denied the FTC's request for a preliminary injunction, ruling that the regulator had failed to demonstrate that it would likely prevail in its claim that the proposed merger would substantially lessen competition or raise prices for consumers. Instead, Judge Eskridge found that consumers would likely benefit from lower prices and increased distribution of Tempur Sealy mattresses following the merger.
In his opinion, released February 4, 2025, Judge Eskridge credited the vertical merger's potential for elimination of double marginalization, which arises in such mergers by aligning the pricing incentives of manufacturers and retailers to reduce excessive wholesale and retail margins, resulting in lower consumer prices, greater distribution and sales, and greater consumer welfare.
The Brattle team also provided support related to the parties' proposed commitments, both during the FTC's regulatory proceeding and at trial. Judge Eskridge acknowledged that the parties' proposed remedy was not only relevant in addressing the potential to offset any possible competitive harm, but that, to the extent there was any such harm, it would sufficiently address those possible concerns. He wrote:
To be clear, it's been determined above that the proposed acquisition won't substantially harm competition. But even if assumed to the contrary, Defendants' commitments to divest certain stores and to maintain going-forward slot allocations resolves any lingering concern. Such commitments are of a kind reasonably related to the merits that courts credit in rejecting government merger challenges. …. And their cumulative effect is sufficient to prevent the merger from inflicting any substantial harm to competition. (Opinion at 111).
Along with Dr. Verlinda, the Brattle team supporting Mattress Firm throughout the regulatory review and trial proceedings included Senior Associates Dr. Yong Paek and Alex Asancheyev; Associates Dr. Marianne Bernatzky, Dr. Oscar Camacho, Dr. Anita Walsh, and Dr. Chen Zheng; Research Associate April Dang; Consultant Ivy Yang; Senior Research Analysts Natasha Abrol, Ryan Chapman, Peter Christenson, Miriam Goldgeil, Mariam Obaiah, Preetul Sen, Vanshika Singhania; and Research Analyst Subha Roychoudhury.
Brattle worked closely with attorneys at Simpson Thacher & Bartlett, including Sara Razi, Lindsey Bohl, Preston Miller, Nicholas Ingros, Avia Gridi, Geoff Schmelkin, and Nicholas Prendergast; and attorneys at Cleary Gottlieb, including Ryan Shores, Heather Nyong'o, Bruce Hoffman, Daniel Culley, Blair West Matthews, and Gabriel Lazarus.
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