Somnigroup International Inc. · NYSE:SGI
Somnigroup International — Tempur Sealy International — Proxy Contest (April 2015)
95 slides from Somnigroup International's proxy contest presentation, Apr 7, 2015
Slide 1: Reinvigorating Leadership for Long-Term Success
Reinvigorating Leadership for Long-Term Success April 7, 2015
Slide 2: Disclaimer
Disclaimer THIS PRESENTATION IS FOR DISCUSSION AND GENERAL INFORMATIONAL PURPOSES ONLY. IT DOES NOT HAVE REGARD TO THE SPECIFIC INVESTMENT OBJECTIVE, FINANCIAL SITUATION, SUITABILITY, OR THE PARTICULAR NEED OF ANY SPECIFIC PERSON WHO MAY RECEIVE THIS PRESENTATION, AND SHOULD NOT BE TAKEN AS ADVICE O
Slide 3: Disclaimer (cont'd)
Disclaimer (cont’d) EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS ADDRESSED IN THIS PRESENTATION ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE CERTAIN RISKS AND UNCERTAINTIES. YOU SHOULD BE AWARE THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKIN
Slide 4: Warren Buffett quote on removing mediocre CEOs
“Getting rid of mediocre CEOs…requires action by owners…acting together, [they] could effectively reform corporate governance at a given company, simply by withholding their votes for directors…” Warren E. Buffett
Slide 5: Table of Contents
Table of Contents Introduction 6 Stock Underperformance 11 Weak Financial Results and Execution Errors 16 The Latest Red Flags 30 Poor Corporate Governance: A Stale and Misaligned Board 34 Our Solution: Fixing Five Enduring Foundations 40 Vote Now to Protect Your Investment 48 Further Analysis: o CE
Slide 6: Introduction
Introduction
Slide 7: H Partners: A Long-Term Value Investor and Tempur Sealy's Largest Shareholder
H Partners: A Long-Term Value Investor and Tempur Sealy’s Largest Shareholder Is Calling For Change o Largest shareholder of Tempur Sealy, with ~10% stake Our History o Invested in Sealy in 2011, and invested in Tempur Sealy in 2012 with Tempur o Advocating vote “AGAINST” three directors whom we bel
Slide 8: Tempur Sealy Has Tremendous Potential
Tempur Sealy Has Tremendous Potential… Best-In-Class Products o Tempur-Pedic: #1 U.S. Brand People are Most Interested in Best-In-Class Purchasing Brands o Sealy: #1 U.S. Brand People are Most Likely To Buy o Over 7,000 talented and dedicated employees Best-In-Class Employees o Tempur Sealy teams de
Slide 9: Tempur Sealy Shareholders Are Suffering Through Sleepless Nights
…But, Tempur Sealy Shareholders Are Suffering Through Sleepless Nights Weak Financial Poor Corporate Governance Stock Underperformance Results Stock Underperformance o Tempur Sealy has underperformed its self- selected peers by 140% over the last three years and 175% over the last five years o Retur
Slide 10: Another Major Shareholder Has Publicly Supported the Changes
Another Long-Tenured, Major Shareholder Has Publicly Supported the Changes We Are Advocating Long-Tenured Shareholder Supports Our View We Believe Other Investors Also Desire Change o Chieftain Capital Management, an o The stock has gained almost 20% since H approximate 6% shareholder and major Part
Slide 11: Stock Underperformance
Stock Underperformance
Slide 12: Significant Underperformance Over One, Three and Five-Year Periods
Stock Under- Significant Underperformance Over the performance Last One, Three and Five-Year Periods ○ Tempur Sealy has significantly underperformed the S&P 500 Index, mattress sector peers Select Comfort and Mattress Firm, and the Company’s self- selected peer group ○ Periods look back from Feb. 9,
Slide 13: Consistently Ranks in Bottom Quartile vs. Peers
Stock Under- Consistently Ranks in Bottom Quartile vs. performance Peers Selected by the CEO and Board 1-Year Total Return7 3-Year Total Return7 5-Year Total Return7 Select Comfort 85% Hanesbrands 338% Mattress Firm n.a. Hanesbrands 65% Under Armour 251% Under Armour 1070% Leggett & Platt 49% Jarden
Slide 14: Board's Cherry-Picking, Part 1: Mr. Sarvary Joined When Valuation Was Depressed
Board’s Cherry-Picking, Part 1: Mr. Sarvary Joined Tempur-Pedic When its Valuation Was Depressed and Earnings Were at Recession Lows “…Since Mr. Sarvary’s appointment ○ With a depressed multiple of 6.5x LTM P/E8 and earnings near in 2008, Tempur Sealy has…realized recession lows, the value of Tempur
Slide 15: Board's Cherry-Picking, Part 2: The Sealy Acquisition
Board’s Cherry-Picking, Part 2: The Sealy Acquisition Occurred After a Large Dislocation Due to Strategic Missteps “…since the announcement of the acquisition ○ The Board fails to mention that the Sealy of Sealy, the Company has created an additional approximately $1.8 billion in acquisition was ann
Slide 16: Weak Financial Results and Execution Errors
Weak Financial Results and Execution Errors
Slide 17: 60% Reduction in Long-Term Earnings Expectations
Weak Financial 60% Reduction in Long-Term Earnings Results Expectations ○ Each of the prior two Investor Days have featured a significant reduction in long-term earnings expectations 2016 EPS Expectations at Various Points in Time 12 $10.00 $8.00 + $8.00 60% Reduction $6.00 Standalone $4.00 $4.00 Te
Slide 18: Consistently Missed Short-Term Financial Targets
Weak Financial Consistently Missed Short-Term Financial Results Targets ○ Consistent ‘misses’ indicate to us that management has poor control over the Company Examples of Management's "Over-Promising" and "Under-Delivering" Period Operating Metric Company Guidance or Target Reported Result Q2 2012 O
Slide 19: Analyst Estimates Continue to Fall
Weak Financial Analyst Estimates Continue to Fall Results Because of Constant Earnings Misses “Tempur Sealy has a strong track record of ○ If the Company continues to “meet or meeting or exceeding analyst estimates…” exceed analyst estimates”, why have analyst estimates continued to fall? Tempur Sea
Slide 20: Current Operating Margins Are Almost Half of Historical Peak Levels
Weak Financial Current Operating Margins Are Almost Half Results of Historical Peak Levels ○ Current operating margins of 10.7% are 900 basis points below historical peak levels achieved by Tempur-Pedic and Sealy13 Tempur Sealy Current Revenue and Operating Margin vs. Historical Peak 3,500 25% 2,937
Slide 21: Execution Mistakes in Every Single Quarter for the Past Three Years
Execution Execution Mistakes in Every Single Errors Quarter for the Past Three Years Quarter Category Execution Mistakes Q1 2012 Strategy / Competition • Failure to anticipate competition pressures margin outlook Strategy / Competition • Significant market share loss Q2 2012 Product Development • Te
Slide 22: Failure to Anticipate Competitive Threats to the Core Tempur Segment
Before Sealy Acquisition: Failure to Execution Errors Anticipate and Address Competitive Threats to the Core Tempur Segment ○ For years prior to Mr. Sarvary’s arrival, other memory foam offerings tried to compete with Tempur-Pedic, but prior CEOs successfully blocked new entrants ○ In 2011, the Comp
Slide 23: Strategic Complacency Caused Market Share Loss
Before Sealy Acquisition: Strategic Execution Errors Complacency Caused Significant Market Share Loss Due to Product Deficiencies Poor Product Appearance Perception of “Sleeping Hot” Tempur-Pedic “…I am not a fan of the Tempur-Pedic. It is like sleeping on hot sand…” Amazon.com Consumer Review, Nove
Slide 24: Strategic Complacency Degraded the Tempur Segment's Operating Margin
Before Sealy Acquisition: Execution Errors Strategic Complacency Degraded the Tempur Segment’s Operating Margin Historical: o Prior to Mr. Sarvary’s arrival in 2008, Tempur segment’s business model 21.9% closely resembled that of certain consumer businesses whose high levels Operating of advertising
Slide 25: Company Became Much Larger and More Complex
After Sealy Acquisition: Execution Errors Company Became Much Larger and More Complex “…increased scope and ○ Today, Tempur Sealy has nine times the manufacturing complexity of running a larger, facilities and six times the employees that it had when more complex business following the Sealy the cur
Slide 26: Failure to Properly Integrate Sealy and Realize Synergies
After Sealy Acquisition: Execution Errors Failure to Properly Integrate Sealy and Realize Synergies “…there are and will be meaningful synergies ○ Since acquiring Sealy, adjusted EBITDA has that will become more evident as the combined Company pursues its strategy.” declined by $20 million Sealy Acq
Slide 27: Board Does Not Appear to Understand Profitability Is Deteriorating
The Board Does Not Appear to Understand Execution Errors That the Most Critical Financial Metric – Profitability – Is Deteriorating “In 2014, strong performance from our senior ○ In 2014, net sales increased by 21% management team resulted in year-over-year improvements in important financial measur
Slide 28: Board Denies Underperformance, Mistakes, Earnings Misses and Lack of Synergies
Board Denies Stock Underperformance, Execution Errors Execution Mistakes, Earnings Misses and Lack of Synergies Board is cherry-picking “…Since Mr. Sarvary’s appointment in from recession lows – Stock 2008, Tempur Sealy has…realized a total stock has shareholder return of Under- more than 480%...” u
Slide 29: H Partners Has Been a Patient Investor Since 2012
H Partners Has Been a Patient Investor Since 2012 Hopeful in o Initially supportive of CEO Sarvary and hopeful he could reverse 2012 the poor performance seen in 2012 o Execution mistakes led Mr. Sarvary to reduce long-term EPS guidance by 50% Concerned in o Raised question of whether Board would be
Slide 30: The Latest Red Flags
The Latest Red Flags
Slide 31: Hiding Behind FX Excuses
Hiding Behind FX Excuses: Peers With Higher Foreign Currency Exposure Are Outperforming TPX “And [as] you are going to hear throughout this Int'l as % 3-Yr. Absolute presentation today, currency is an issue. It was an of Total Rev. Return issue for us last year, and it’s going to be a bigger issue f
Slide 32: Board Withdrew Long-Term EBITDA Guidance While Increasing Leverage Target
The Board Has Withdrawn Long-Term EBITDA Guidance, While Increasing Leverage Target ○ The Company has raised its leverage target while abandoning its long-term EBITDA guidance19 ○ This suggests that the Board intends to hit EPS targets via a share count reduction that is funded by shareholders 600 4
Slide 33: Board May Be Concealing Sealy's Margin Deterioration
The Board May Be Attempting to Conceal Sealy’s Margin Deterioration by Reducing Segment-Level Transparency ○ In 2015, the Company redefined its reporting segments amidst significant shareholder concern around Sealy’s deteriorating operating margins ○ The Board claims redefinition is required followi
Slide 34: Poor Corporate Governance: A Stale and Misaligned Board
Poor Corporate Governance: A Stale and Misaligned Board
Slide 35: Stale, Decade-Long Directorships
Poor Corporate Stale, Decade-Long Directorships Governance ○ 6 out of 11 directors have been on the Board for more than ten years ○ These 6 directors have each collected an average of $1.4 million in fees21 ○ No fresh perspective: only one director added since Sealy acquisition Lawrence Rogers Avera
Slide 36: Large Shareholders Have No Board Representation
Poor Corporate Large Shareholders Have No Board Governance Representation ○ Shareholders owning 99% of the voting stock have zero board representation, while directors with 1% of the voting stock are dictating the agenda22 11 Board Seats Zero Board Seats 12% 10% 10% 9% 8% 8% % Voting Stake 6% 6% 6%
Slide 37: Former Private Equity Investors Remain Entrenched
Poor Corporate Former Private Equity Investors Remain Governance Entrenched ○ TA Associates’ McLane and Friedman Fleischer’s Masto initially joined the Board when their firms had majority ownership23 ○ TA and FF have had no stake for many years but retain Board representation ○ TA has effectively co
Slide 38: McLane of TA Associates Appears to Pursue a Personal Agenda: Related Party Transaction?
Poor P. Andrews McLane of TA Associates Corporate Appears to Pursue a Personal Agenda: Governance Related Party Transaction? ○ One year after TA Associates exited its investment, Tempur-Pedic began sponsoring the U.S. Ski & Snowboard Association ○ Mr. McLane has served as a director of the USSA Boar
Slide 39: Board Has Doubled CEO's Compensation While Underperformance Widened
Poor Board Has Doubled CEO’s Compensation Corporate While the Company’s Underperformance Governance Has Widened “…strong record of working to align ○ Over the last three years, the CEO’s annual management compensation with compensation has increased from $3.4 million to performance…” Tempur Sealy In
Slide 40: Our Solution: Fixing Five Enduring Foundations
Our Solution: Fixing Five Enduring Foundations
Slide 41: First Foundation: Recruit a Proven CEO with Strong Operational Skills
Our First Foundation: Recruit a Proven CEO Solution with Strong Operational Skills ○ We believe that the Board must match a CEO to the current requirements of a larger, more complex Tempur Sealy. ○ A candidate should have most or all of the skills below: Relevant Skill √/X Comment A strong prior tra
Slide 42: First Foundation: CEO Succession Should Be Orderly and Collaborative
Our First Foundation: CEO Succession Should Solution Be Orderly and Collaborative ○ All Boards have a duty to plan for a scenario in which a CEO leaves, is removed, or faces untimely illness or death ○ If our campaign is successful, there would be three open Board seats following the Board’s accepta
Slide 43: Second Foundation: Review Organizational Structure and Fill Vacant Operations Role
Our Second Foundation: Review Organizational Solution Structure and Fill Vacant Operations Role ○ New leadership should develop a clear and appropriate organizational structure given the current needs of Tempur Sealy ○ The Head of Operations role has been vacant since January 2013.28 The new Board s
Slide 44: Third Foundation: Sharpen Strategy by Prioritizing Profitability
Third Foundation: Sharpen Strategy by Our Solution Prioritizing Profitability and Re-assess Low Value Projects to Enable Better Execution ○ The Board and the senior management team should develop a more focused strategic plan to emphasize absolute profitability and profitable growth Focused Strategy
Slide 45: Fourth Foundation: Develop Stretch Goals That Create Value
Fourth Foundation: Develop Stretch Goals Our Solution That Create Value for Shareholders and Are Easily Understood by All Employees ○ Introduce an aspirational plan to significantly improve operating earnings ○ Align Company around an “absolute EBITDA” target – a clear, singular performance metric ○
Slide 46: Fifth Foundation: Emphasize Clear, Repeated and Credible Communication
Fifth Foundation: Emphasize Clear, Our Solution Repeated and Credible Communication with Key Stakeholders ○ Employees: Senior management should conduct “town halls” at all facilities to (i) communicate a focused strategy, (ii) rationale and building blocks for “absolute EBITDA” target and (iii) fiel
Slide 47: Tempur Sealy Can Generate Great Returns If a Reconstituted Board Fixes the Foundations
We Believe Tempur Sealy Can Generate Great Returns If a Reconstituted Board Fixes the “Five Flawed Foundations” Sound o Replace underperforming CEO Best-In-Class Governance Financial Results A Capable with a proven leader with an Strong Stock CEO operationally-intensive Performance background o Imme
Slide 48: Vote Now to Protect Your Investment
Vote Now to Protect Your Investment
Slide 49: Directors Masto, McLane and Sarvary Must Be Replaced
We Believe Directors Masto, McLane and Sarvary Must Be Replaced Because, Under Their Leadership, a Misaligned Board Is Failing Shareholders Failure to o Board actively denies stock underperformance, earnings misses, Hold execution mistakes and lack of synergies Management o Board fails to understand
Slide 50: Vote AGAINST Masto, McLane and Sarvary: A Referendum on the Need for New Leadership
Vote “AGAINST” Masto, McLane and Sarvary: A Referendum on the Need for New Leadership and Shareholders’ Demand for Board Representation o Seeks to compel resignation of CEO Sarvary as director for destroying shareholder value Referendum o Seeks to compel resignation of two Board chairs who we Serves
Slide 51: To Fix Tempur Sealy, Vote AGAINST on the BLUE Proxy Card Today
To Fix Tempur Sealy, Vote “AGAINST” Masto, McLane and Sarvary on the BLUE Proxy Card Today How To Vote: ○ Vote by Phone: Please call the telephone number specified on your BLUE proxy card from a touchtone phone and follow the simple instructions ○ Vote by Internet: Please access the website specifie
Slide 52: Further Analysis
Further Analysis
Slide 53: CEO Mark Sarvary's Prior Track Record of Underperformance
CEO Mark Sarvary’s Prior Track Record of Underperformance
Slide 54: Mr. Sarvary's Prior CEO Appointment Ended in Termination After J. Crew Underperformed
CEO’s Track Mr. Sarvary’s One Prior Appointment as Record of Under- CEO Ended in Termination After J. Crew performance Underperformed Peers ○ Mr. Sarvary was dismissed in 2002 after three years as CEO of J. Crew29 ○ Under Mr. Sarvary’s supervision, J. Crew’s operating income declined by 48% and its
Slide 55: Mr. Sarvary's Role at Campbell Soup Ended in Termination
CEO’s Track Mr. Sarvary’s Role at Campbell Soup Ended Record of Under- in Termination After His Division performance Underperformed Peers “During his tenure as president, the North ○ The board fails to mention that under Mr. America division [of Campbell Soup] grew sales and earnings each year.” Sar
Slide 56: Board Leaders' Personal Agendas
Board Leaders’ Personal Agendas
Slide 57: TA Associates' Mr. McLane Has Overstayed His Welcome
Board Leaders’ We Believe TA Associates’ Mr. McLane Personal Agendas Has Overstayed His Welcome ○ TA directors typically step off boards within two years of TA’s exit ○ Yet, Mr. McLane has remained Chairman for six years following TA’s exit from Tempur-Pedic Number of Months on Public Company Board
Slide 58: TA Associates Understands the Importance of Board Representation
Board When It Comes to Its Own Investments, TA Leaders’ Personal Associates Understands the Importance of Agendas Board Representation ○ On average, TA Associates takes two board seats when it invests ○ Even in its minority investments, TA appears to insist on Board representation Board Representati
Slide 59: Friedman Fleischer's Mr. Masto Has Overstayed His Welcome
Board Leaders’ We Believe Friedman Fleischer’s Mr. Masto Personal Agendas Has Overstayed His Welcome ○ FF directors typically step off boards within two years of FF’s exit ○ Yet, Mr. Masto has remained on the board for nine years following FF’s initial exit from Tempur-Pedic Number of Months on Publ
Slide 60: Friedman Fleischer Also Understands the Importance of Board Representation
Board When It Comes to Its Own Investments, Leaders’ Personal Friedman Fleischer Also Understands the Agendas Importance of Board Representation ○ We could find no recent examples of a FF investment where FF did not receive Board representation; on average, FF takes two board seats ○ Even in its min
Slide 61: McLane Appears to Pursue a Personal Agenda: Trading the Stock
Board P. Andrews McLane of TA Associates Leaders’ Personal Appears to Pursue a Personal Agenda: Agendas Trading the Stock ○ In 2012, while Tempur Sealy public shareholders suffered a $1.5 billion – or 40% loss – in equity value, Mr. McLane personally earned a $725,000 gain due to what appears to be
Slide 62: Masto Appears to Pursue a Personal Agenda: Trading the Stock
Board Christopher Masto of Friedman Fleischer Leaders’ Personal Appears to Pursue a Personal Agenda: Agendas Trading the Stock ○ In 2006, Friedman Fleischer exited its initial investment in Tempur-Pedic ○ In 2008, with knowledge that Tempur-Pedic would issue a material profit warning, Friedman Fleis
Slide 63: A Friedman Fleischer Employee Was Convicted of Insider Trading
Board A Friedman Fleischer Employee Was Leaders’ Personal Convicted of Insider Trading in Agendas Tempur-Pedic Stock ○ Friedman Fleischer’s former CFO was charged by Federal authorities with insider trading in connection with his personal trades in Tempur-Pedic stock during the time of Friedman Flei
Slide 64: Contrasting Outcomes: Six Flags vs. Tempur Sealy
Contrasting Outcomes: Six Flags’ Outperformance vs. Tempur Sealy’s Underperformance
Slide 65: Six Flags in 2010: A Worst-In-Class, Persistent Underperformer
Six Flags in 2010: A Worst-In-Class, Persistent Underperformer o Historically, Six Flags significantly underperformed peers in terms of stock performance, financial results and execution Persistent o Its pre-recession operating margin between 2005 and 2007 was Under- only 13% performer o The poor op
Slide 66: The New Board Believed That Six Flags Was a Good Business
The New Board Believed That Six Flags Was a Good Business High o Significant investment required to build competing parks Barriers to Entry o Regional dominance; does not compete with Disney, Universal o Six Flags is the most recognized regional theme park brand o A 50 year old iconic American compa
Slide 67: The New Board Considered Five Critical Layers for a Solid Foundation
The New Board Considered Five Critical Layers Required for a Solid Foundation ○ What key steps should the Board take, and in which order? ○ What are the needs of this operationally-intensive business? What steps should the What Board comes take? first? 67
Slide 68: Six Flags Board Recruited a Capable CEO with Relevant Skills
First Foundation: The Six Flags Board Recruited a Capable A Capable CEO CEO with Relevant Skills to Run Six Flags ○ The Board recognized that Six Flags was an operationally-intensive business: ○ 18 facilities in the U.S., Canada and Mexico ○ 26 million attendees per year ○ 39,000 employees ○ Therefo
Slide 69: Six Flags Board Quickly Established an Appropriate Organizational Structure
Second Foundation: Appropriate The Six Flags Board Quickly Established Org an Appropriate Organizational Structure Structure ○ Within 45 days of the new CEO joining, the Six Flags Board established a clear organizational structure, filling all critical positions ○ The new CEO and Board recognized th
Slide 70: The New Team Developed a Focused Strategy
Third Foundation: The New Team Worked with the Board to Focused Strategy Develop a Focused Strategy ○ Previous management aspired to be a “mini Disney”: both theme parks and media assets ○ The new Board and management team sharpened the focus ○ Six Flags now aspired to become the highest quality reg
Slide 71: CEO and Board Set a Highly Aspirational Long-Term Cash Flow Goal
Fourth Foundation: Alignment The CEO and Board Set a Highly with Stretch Aspirational Long-Term Cash Flow Goal Goals ○ The prior Board had set mediocre targets based on many different financial and operating metrics ○ When new management arrived, Six Flags was generating approximately $200 million i
Slide 72: Six Flags Communicated Clearly with All Key Stakeholders
Fifth Foundation: Six Flags Communicated Clearly with Clear Comm- unication All Key Stakeholders ○ Employees: The CEO and senior management constantly visit the facilities to reinforce key messages to employees, and to gather feedback on how to improve operations and execution ○ Shareholders: Invest
Slide 73: Strong and Enduring Foundations Were Established In Four Months
Six Flags Strong and Enduring Foundations Were Timeline Established In Four Months ○ H Partners’ Usman Nabi was appointed Chairman on May 1, 2010 ○ One year later, Six Flags’ stock had already gained 99% vs. 18% for the S&P41 May 11, 2010 Jun. 15, 2010 Aug. 16, 2010 Interim CEO Within one month, CEO
Slide 74: Six Flags Shareholders Have Slept Well For Years
Because of Sound Corporate Governance and Five Solid Foundations Established in 2010, Six Flags Shareholders Have Slept Well For Years Sound Corporate Stock Outperformance Best-In-Class Governance Financial Results Stock o 490% return since H Partners’ involvement Outperformance o Stock has been str
Slide 75: So, Why Can't Tempur Sealy Shareholders Sleep at Night?
So, Why Can’t Tempur Sealy Shareholders Sleep at Night? Weak Financial Poor Corporate Governance Stock Underperformance Results Stock Underperformance o Tempur Sealy has underperformed its self- selected peers by 140% over last the three years and 175% over the last five years o Returns consistently
Slide 76: CEO Lacks Relevant Skills and Has a Poor Prior Track Record
First Foundation: An We Believe the CEO Lacks Relevant Skills Incapable and Has a Poor Prior Track Record CEO ○ CEO Sarvary was already struggling in 2011 – 2012, and in 2013, Tempur Sealy became a significantly more operationally-intensive company following the acquisition of Sealy ○ We believe the
Slide 77: Organizational Structure Has Had a Significant Gap
Second Foundation: Organizational Structure Has Had, And Flawed Org Structure Continues to Have, a Significant Gap ○ Tempur Sealy has two main functional areas: manufacturing and marketing ○ Mr. Sarvary joined in 2008, but waited until 2014 to hire a Chief Marketing Officer ○ Before CMO was hired, C
Slide 78: We Believe Tempur Sealy Has an Unfocused Strategy
Third Foundation: An We Believe Tempur Sealy Has an Unfocused Unfocused Strategy Strategy ○ In theory, all of these are sound objectives, but… Tempur Sealy Investor Presentation, February 18, 2015 78
Slide 79: Too Many Projects Tangential to the Core Mattress Business
Third Foundation: An Unfocused Strategy: An Too Many Projects That Are Tangential to Unfocused Strategy the Core Mattress Business Tangential Projects Core Business Tangential Projects “Tempur-Pedic Slippers” “Jordan’s Furniture Announces Tempur-Pedic IMAX 3D “Tempur-Pedic Dog “First-of-its-Kind The
Slide 80: Unfocused Board Caused Competitive Weakness and Margin Erosion
Third Foundation: Over the Last Four Years, We Believe an An Unfocused Board Caused Competitive Unfocused Strategy Weakness and Margin Erosion ○ A study of activities from 2011 - 2015 shows that the Board was focused on tangential activities while competitors successfully exploited product weaknesse
Slide 81: Board Added Yet Another Tangential Product Line
Third Foundation: Just Last Month, the Board Added Yet An Another Tangential Product Line While Unfocused Strategy Margins Are Plummeting “Tempur-Pedic Introduces First-Ever Home Collection” “The new Tempur-Pedic Home Collection by Andrew Morgan, featuring slip covers created for the brand’s custom
Slide 82: Too Many Metrics and Targets That Are Not Stretch Goals
Fourth We Believe the Board Aligns Employees Foundation: Unclear With Too Many Metrics and Targets Alignment That Are Not Stretch Goals ○ After reducing long-term earnings expectations in each of the last two analyst days, the Board recently unveiled these four new annual “evergreen” targets: Tempur
Slide 83: Tempur Sealy Targets Are Not Stretch Goals
Fourth Foundation: Tempur Sealy Targets Are Not Stretch Unclear Alignment Goals ○ In 2012, the Board and CEO unveiled a long-term EPS target of $8.00 for a standalone Tempur-Pedic ○ Current targets for a combined Tempur-Pedic and Sealy are still almost half of Tempur-Pedic alone in 2012 Tempur Sealy
Slide 84: Striving to Recover Only One-Third of Lost Margins
Fourth Foundation: Striving to Recover Only One-Third Unclear Alignment of Lost Margins vs. Historical Peak ○ Historical peak margin was 19.4% versus 10.7% today – 900 basis points of margin have been lost ○ The Board and CEO now aspire to take four years to achieve a 13.7% operating margin Tempur S
Slide 85: Board Aspires to Get Sealy Margins Below Level at Acquisition
Fourth The Board Aspires to Get Sealy Margins to Foundation: Unclear a Level Below Where They Were When Alignment Sealy Was Acquired ○ The Board is setting an extremely low bar at Sealy – this does not appear to be a stretch goal44 Tempur Sealy Investor Presentation, February 18, 2015 36% 34.3% 34%
Slide 86: How Can We Expect More Synergies When We Can't See the Initial Synergies?
Fourth Foundation: How Can We Expect More Synergies When Unclear Alignment We Can’t See the Initial Synergies? ○ The Board aspires to get to $70 million in synergies ○ But where are the “realized” $45 million of synergies? Tempur Sealy Investor Presentation, February 18, 2015 Tempur-Pedic Board clai
Slide 87: Board Has Confused Employees With Too Many Performance Metrics
Fourth We Believe the Board Has Confused Foundation: Unclear Employees With Too Many Performance Alignment Metrics ○ Proxy filing shows an average of 11 different metrics for the past three years 2013 Proxy 2014 Proxy 2015 Proxy Compensation Metrics Mentioned Compensation Metrics Compensation Mentio
Slide 88: Board Over-Emphasizes Sales Growth As Opposed to Earnings Growth
Fourth Foundation: Board Over-Emphasizes Sales Growth Unclear Alignment As Opposed to Earnings Growth ○ The Board touts sales growth, which primarily “Since Mr. Sarvary’s appointment in 2008, Tempur Sealy has…increased total came from the acquisition of Sealy, which was net sales by more than 220%,
Slide 89: CEO Sarvary's Communication with Key Stakeholders Has Been Ineffective
Fifth Foundation: We Believe CEO Sarvary’s Communication Poor with Key Stakeholders Has Been Wholly Comm- unication Ineffective Employees Mr. Sarvary has been “A lack of true combined company teamwork unable to instill, is resulting in building the new company on a through proper foundation of sand.
Slide 90: Tempur Sealy Can Generate Great Returns If a Reconstituted Board Fixes the Foundations
We Believe Tempur Sealy Can Generate Great Returns If a Reconstituted Board Fixes the “Five Flawed Foundations” Sound o Replace underperforming CEO Best-In-Class Governance Financial Results A Capable with a proven leader with an Strong Stock CEO operationally-intensive Performance background o Imme
Slide 91: Vote the BLUE Proxy Card Today
Show Tempur Sealy’s Board That You Demand Change – Vote the BLUE Proxy Card Today
Slide 92: Endnotes
Endnotes 1) Source: H Partners, Bloomberg. Returns reflect period from January 1, 2005 to December 31, 2014. 2) Source: Bloomberg. Total return reflects period from May 11, 2010 to April 6, 2015. 3) Source: Tempur-Pedic International, Inc. and Tempur Sealy International, Inc. 10-K filings (2005 – 20
Slide 93: Endnotes (cont'd)
Endnotes (cont’d) 15) Source: Tempur-Pedic International, Inc. 10-K filing (February 12, 2009). Per 10-K filing, the Company sells its products under the Tempur- Pedic brand name domestically, and under the Tempur brand name abroad. Classifies as one global brand. 16) Source: Tempur Sealy Internatio
Slide 94: Endnotes (cont'd)
Endnotes (cont’d) 26) Source: Bloomberg. Represents change in the value of Company’s market capitalization between market close on February 9, 2012 and market close on February 9, 2015, the trading day before H Partners’ 13D filing. Absolute return references 7 above. 27) Source: Six Flags Entertain
Slide 95: Endnotes (cont'd)
Endnotes (cont’d) 36) Source: Friedman Fleischer website; Bloomberg. Represents current Friedman Fleischer portfolio, as listed on the firm’s website. 37) Source: Bloomberg; Sealy Corporation Schedule 14C Proxy Statement (October 30, 2012). Mr. McLane purchased approximately 112,000 shares of Tempur
Tempur Sealy International — Proxy Contest (April 2015) on 6ix