Sleep Number investor Stadium Capital pushes for board shakeup -letter (updated)

Sleep Number

13/09/2023 21:49

(Updates with stock price, comment from company, paragraphs 2,
4-5)
    By Svea Herbst-Bayliss
       NEW YORK, Sept 13 (Reuters) - Investment firm Stadium
Capital Management wants to shake up the board of bed and
mattress maker Sleep Number Corp  SNBR.O  following more than a
decade of poor returns, according to a letter reviewed by
Reuters.
    Stadium Capital, which owns roughly 9% of the Minneapolis,
Minnesota-headquartered company, said Sleep Number is
undervalued and not performing to its potential. In the last 52
weeks, the stock price has dropped 42%. It fell 1.54% on
Wednesday to $25.56, sharply lower than during the COVID-19
pandemic when shares topped $140 a share as mattress sales
surged. 
    Pointing to "deficiencies in the boardroom", the investment
firm wrote: "We urge you to collaborate with us on a Board
refresh that includes a Stadium Capital representative and other
new directors with relevant expertise."
    The company said its board and management team have engaged
regularly with Stadium and "intend to continue that dialogue,"
adding it "put together a proposal that demonstrates that Sleep
Number has listened closely to Stadium Capital and offered an
opportunity for Stadium Capital to participate in the selection
of a new independent director."
        The company said it remains confident in its strategy
and is focused on "continuing to strengthen its brand, culture
and distinct competitive advantages to drive meaningful value
for shareholders, while managing ongoing macro-environment
challenges."
  
    The board "failed to oversee accretive capital allocation,
effective forecasting and a culture of strong accountability for
management," the letter said. 
    Stadium, based in New Canaan, Connecticut, criticized the
board’s decision to authorize more than $630 million in share
repurchases at an average price of approximately $90 per share
between 2020 and 2022. 
    The firm also said the board erred by mistaking a
pandemic-driven increase in sales as heightened demand for
wellness technology.
    Stadium Capital had previously asked Sleep Number to add
three new directors, including one of the firm's principals,
without success. 
    The standoff sets the stage for a potential proxy fight,
with the company's window for nominating director candidates
just two months away.
    "The Board, as presently constituted, includes long-tenured
members who have been part of questionable decisions and would
likely not fare well in a contested election next year," the
letter said.
    Rival mattress companies including Tempur-Sealy  TPX.N  and
Purple Innovation  PRPL.O  have been the targets of successful
activist campaigns.  

 (Reporting by Svea Herbst-Bayliss; Editing by Lincoln Feast and
David Gregorio)
 ((svea.herbst@thomsonreuters.com; +617 233 2138; Reuters
Messaging: svea.herbst.thomsonreuters.com@reuters.net))