On January 31, 2025, the United States District Court for the Southern District of Texas denied the Federal Trade Commission’s (FTC) motion for a preliminary injunction to block the $4 billion acquisition of Mattress Firm by Tempur Sealy International, Inc. Fed. Trade Comm’n v. Tempur Sealy Int’l, Inc., No. 4:24-CV-02508 (S.D. Tex. Jan. 31, 2025). The FTC declined to seek an injunction pending appeal, allowing the acquisition to close on February 5, 2025.
Tempur Sealy, a leading mattress manufacturer, and Mattress Firm, the largest mattress retailer in the United States, announced their merger plans in May 2023. In July 2024, following a unanimous vote, the FTC filed an administrative complaint and sought a preliminary injunction seeking to prevent the transaction. The FTC’s primary argument was that the vertical merger would allow Tempur Sealy to foreclose rival mattress manufacturers from accessing Mattress Firm’s retail space, thereby harming competition and consumer choice in the United States.
The FTC’s case that the merger would substantially lessen competition hinged on its description of a relevant product market for “premium” mattresses, which it identified as those priced at $2,000 and above. The FTC argued that this alleged market would be adversely affected by the merger, leading to higher prices and reduced competition. However, the Court found two main flaws in the FTC’s arguments.
First, the Court rejected the FTC’s description of the alleged premium mattress market. The Court found that the FTC failed to provide clear evidence that the industry recognizes a distinct market for mattresses priced at $2,000 and above. The Court highlighted that industry participants, including the International Sleep Products Association (ISPA) and Mattress Firm itself, describe the premium market starting at $1,000, not $2,000.
Second, even if the Court agreed with the FTC’s description of the premium mattress market, the Court found that the merger was unlikely to substantially lessen competition because there are numerous alternative retail channels for mattress sales, including department stores, online platforms, and direct-to-consumer options.
Furthermore, Tempur Sealy made several remedial commitments to address potential competitive concerns that ultimately persuaded the Court to conclude that the overall impact of the merger would be, at worst, neutral. Tempur Sealy confirmed, and the Court found credible and sufficient, a commitment to reserve at least 25% of Mattress Firm’s total floor space for third-party brands for five years, of which 75% would be for mattresses priced above $1,500.
The Court also observed that vertical integration often benefits competition and consumers by eliminating double marginalization, promoting efficiencies and innovation, and thereby reducing consumer prices, increasing product quality, and improving the in-store experience. These procompetitive effects coupled with remedial “fix-it-first” solutions (as was the case here) highlight the hurdles agencies face when challenging vertical mergers.
