Issues Letter to Sleep Number Shareholders
Detailing How Stadium Capital’s Path Forward is Superior to the
Board’s Current Course of Action
Stadium Capital Management, LLC (together with certain of its
affiliates, “Stadium Capital” or “we”), the largest shareholder of
Sleep Number Corporation (NASDAQ: SNBR) (“Sleep Number” or the
“Company”) with ownership of approximately 11.7% of the Company’s
outstanding shares, today released the below open letter to the
Company’s shareholders.
***
December 19, 2024
Fellow Shareholders,
On November 25, 2024, we communicated our serious concerns about
Sleep Number’s corporate governance. To reiterate, our main concern
is that while the Board of Directors (the “Board”) has committed to
changes that will eventually lead to improved governance over time,
these changes are not sufficient to improve the Board in a timely
fashion – and importantly, will occur after the Board hires Sleep
Number’s next CEO through a deeply flawed process. The Company is
essentially asking shareholders to trust an ineffective, lame duck
chief executive to run the business during this critical operating
period and a Board that possesses a horrific record to hire Sleep
Number’s new leader. In our view, this is unacceptable and yet
another significant mistake by the Board.
In our November 25th letter, we offered a collaborative path
forward that could be implemented immediately. Our path forward
would do two things: first, it would dramatically improve corporate
governance via immediate, meaningful changes to Board composition.
This improved Board would have much greater odds of success in its
search to recruit a high-caliber CEO. Second, our path forward
would install a highly qualified Executive Chairman who could drive
critical improvements in the business during the “lame duck” period
of outgoing CEO Shelly Ibach’s tenure. This second element is
especially important because it would immediately strengthen
executive leadership, allowing time to reset a far more effective
CEO search process.
We did not offer a specific name for the Executive Chairman role
in our November 25th letter. Our hope was that after hearing from
many of you, the Board would come to the table and collaborate with
us, at which point we could work together. Unfortunately, despite
nearly a month elapsing since our letter, a 63% rise in Sleep
Number’s share price,1 and what we suspect to be a significant
number of inbound communications from the shareholders it
supposedly represents, the Board has not engaged with us.
Given the Board’s silence on the issue, we wanted to provide an
overview of our proposed path forward, which we are confident most
of you will agree is far superior to the Board’s current strategy.
We look forward to sharing more details about our plan to help
Sleep Number achieve its vast potential and generate superior
shareholder returns.
Pat Hopf & Gary Fazio: The Right
People to Help Oversee a Turnaround at Sleep Number
We believe Sleep Number should name Patrick “Pat” Hopf, one of
our Board nominees, as Executive Chairman in short order. Mr. Hopf
was the founding investor in Sleep Number (then Select Comfort) and
wrote the original business plan in 1991. He was interim CEO of
Sleep Number on two occasions and Chairman for 12 years. He started
the direct response business and helped create the retail and
online channels. Mr. Hopf did this because in his words, “Owning a
Sleep Number bed literally changed my life. It relieved my back
pain so dramatically that my body felt 20 years younger.” Mr. Hopf
has been passionate about the benefits of Sleep Number beds since
1991 and has long believed that Sleep Number should be the leader
of the mattress industry. While Mr. Hopf already spends much of the
year in Minnesota, he plans to move back permanently in early 2025
so that he can more effectively dig into the issues at Sleep
Number.
Mr. Hopf’s first move as Executive Chairman would be to bring on
Gary Fazio as Strategic Advisor. Mr. Fazio is a mattress industry
legend with an extraordinary record of massive value creation as
CEO of Mattress Firm Group, Inc., which he transformed from a
fledgling regional chain into a dominant, nationwide powerhouse. He
was also CEO of Simmons Bedding and later, Serta Simmons Bedding,
where he managed 38 manufacturing facilities while turning the
company into the nation’s #1 bedding manufacturer with 40% market
share. He began his career by spending two decades at Sealy
Corporation, where he oversaw 20 manufacturing facilities and drove
double-digit improvements in operating cash flow. In partnership
with Mr. Hopf, Mr. Fazio is prepared to dive in immediately to
revitalize Sleep Number’s business.
We are confident that Mr. Hopf’s deep knowledge of and passion
for the Sleep Number brand, combined with Mr. Fazio’s exceptionally
deep industry contacts and experience, will position Sleep Number
for the great success all of the Company’s stakeholders deserve.
Messrs. Hopf and Fazio will not waste a moment. We look forward to
sharing their exciting turnaround plan with you.
We believe that by installing Mr. Hopf as Executive Chairman,
bringing Mr. Fazio on as Strategic Advisor, and making the rest of
the governance changes suggested in our November 25th letter, the
upgraded Board will be in the best position possible to chart a
value-creating path for Sleep Number and attract a world-class
CEO.
We think it ought to be eminently clear that our recommended
plan is far superior to the current Board’s course of action. In
our view, trading Ms. Ibach, Brenda Lauderback, Stephen Gulis,
Michael Harrison, and Barbara Matas for Messrs. Hopf and Fazio and
a deeply knowledgeable shareholder representative would
meaningfully upgrade the skillsets and experience of executive
leadership and the Board. We believe the Board should implement
these changes in short order. We know many of you have agreed with
our overall strategy to restore and revitalize Sleep Number. Now,
with some more clarity about that plan, including the exciting
addition of Mr. Fazio to our team, we hope you continue to
articulate these views directly to the Board.
Sincerely,
The Stadium Capital Investment Team
***
About Stadium Capital
Stadium Capital Management, LLC seeks to apply a patient,
private equity approach to public market investing, anchored by
deep fundamental research. Since our strategy inception in 1997, we
have invested in a concentrated portfolio of smaller-cap, public
companies across North America and Europe with a long-term
investment horizon and a focus on high-quality businesses with
durable free cash flow. We have almost three decades of deep
investment experience through multiple full market cycles, working
closely and collaboratively with our portfolio companies. For more
information, visit www.StadiumCapital.com.
CERTAIN INFORMATION CONCERNING THE
PARTICIPANTS
Stadium Capital Partners, L.P. (“SCP”), together with the other participants named
herein (collectively, “Stadium
Capital”), intend to file a preliminary proxy statement and
accompanying WHITE universal proxy card with the Securities
and Exchange Commission (“SEC”) to be
used to solicit votes for the election of Stadium Capital’s slate
of highly-qualified director nominees at the 2025 annual meeting of
shareholders of Sleep Number Corporation, a Minnesota corporation
(the “Company”).
STADIUM CAPITAL STRONGLY ADVISES ALL SHAREHOLDERS OF THE COMPANY
TO READ THE PROXY STATEMENT AND OTHER PROXY MATERIALS, INCLUDING A
PROXY CARD, AS THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION. SUCH PROXY MATERIALS WILL BE AVAILABLE AT NO
CHARGE ON THE SEC'S WEB SITE AT HTTP://WWW.SEC.GOV. IN ADDITION,
THE PARTICIPANTS IN THIS PROXY SOLICITATION WILL PROVIDE COPIES OF
THE PROXY STATEMENT WITHOUT CHARGE, WHEN AVAILABLE, UPON REQUEST.
REQUESTS FOR COPIES SHOULD BE DIRECTED TO THE PARTICIPANTS' PROXY
SOLICITOR.
The participants in the anticipated proxy solicitation are
expected to be SCP, Stadium Special Opportunity I, L.P.
(“SSO”), Stadium Capital Management
GP, L.P. (“SCMGP”), Stadium Capital
Management, LLC (“SCM”), Alexander M.
Seaver, Kevin Baker, Patrick A. Hopf, Jeffrey T. Jackson, Jessica
M. Prager and Gary Fazio. As of the date hereof, SCP directly
beneficially owns 2,215,000 shares of Common Stock, par value $0.01
per share (the “Common Stock”), of the
Company. As of the date hereof, SSO directly beneficially owns
401,459 shares of Common Stock. SCMGP, as the general partner of
SCP and SSO, may be deemed to beneficially own the 2,616,459 shares
of Common Stock owned in the aggregate by SCP and SSO. SCM, as the
investment advisor to SCP and SSO and as the general partner of
SCMGP, may be deemed to beneficially own the 2,616,459 shares of
Common Stock owned in the aggregate by SCP and SSO. Mr. Seaver, as
the manager of SCM, may be deemed to beneficially own the 2,616,459
shares of Common Stock owned in the aggregate by SCP and SSO. As of
the date hereof, Mr. Hopf directly beneficially owns 51,500 shares
of Common Stock, which includes 1,500 shares of Common Stock
underlying certain call options that are currently exercisable. As
of the date hereof, Messrs. Baker, Jackson and Fazio and Ms. Prager
do not beneficially own any shares of Common Stock.
_________________________ 1 Calculated as of market close on
November 22, 2024, the immediately preceding trading day to the
November 25th letter, to market close on December 11, 2024, the
trading day immediately preceding the issuance of our December 12th
letter.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20241219255858/en/
Longacre Square Partners Charlotte Kiaie / Bela Kirpalani,
646-386-0091 ckiaie@longacresquare.com /
bkirpalani@longacresquare.com
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