UPDATE 2-Mattress Firm to buy Sleep Train to expand in West Coast

Thu Sep 4, 2014 12:20pm EDT

(Adds details, CEO comment; updates shares)

Sept 4 (Reuters) - Mattress Firm Holding Corp said it would buy privately held bedding retailer The Sleep Train Inc for $425 million, its sixth and largest acquisition announced in the past year, to expand its presence in the West Coast region.

Shares of Mattress Firm, which also reported a better-than-expected quarterly profit, rose as much as 14 percent to an all-time high of $64.78 on Thursday.

The company said it would also take on Sleep Train's liabilities of about $15 million.

The acquisition will give Mattress Firm immediate scale and provide it a "clear runway for growth" in the highly populated West Coast region, where it has nominal presence, Chief Executive Steve Stagner said on a conference call.

Mattress Firm does not have any presence in California and Oregon, where Sleep Train has 213 stores.

The deal will also help Mattress Firm cement its position as the top specialty mattress retailer in the United States.

The company had a 10 percent share of the market last year, it said, quoting a May report by online news and research portal Furniture Today. Sleep Train was fourth largest with a 3.4 percent market share.

Reuters could not independently verify the Furniture Today report.

Mattress Firm has just 34 of its over 1,500 stores in the West Coast region - in Washington, Idaho and Nevada.

Sleep Train has 311 stores in California, Oregon, Washington, Idaho, Nevada and Hawaii. The company posted net sales of $471 million for its fiscal 2013.

Sleep Train founder and Chief Executive Dale Carlsen will take over as Mattress Firm's president after the closure of the deal, expected in the fourth quarter ending January.

Mattress Firm said it expected annual synergies of $20 million by the year ending January 2018 from the acquisition.

The deal will add to earnings per share in mid single digits in percentage terms in the first year after closing, it said.

Mattress Firm said it would fund the deal with cash reserves and proceeds from the issuance of senior secured debt instruments.

The company's net income rose 1.4 percent to $14.3 million, or 42 cents per share, in the second quarter ended July 30, helped by a rise in demand for higher-margin mattresses and acquisitions including Mattress Liquidators Inc.

Excluding items, Mattress Firm earned 61 cents per share.

Analysts on average had expected earnings of 60 cents per share, according to Thomson Reuters I/B/E/S.

Net sales rose 35.5 percent to $409.9 million, in line with the average analyst estimate.

Same-store sales grew 9.7 percent.

Mattress Firm's shares were up 12.1 percent at $63.73 in noon trading on the Nasdaq. Up to Wednesday's close, the stock had risen 32 percent this year. (Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Kirti Pandey)

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