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FINANCIAL SERVICES REPORTER

Two of the world's largest mattress makers are jumping into bed together, with Simmons Co. and its iconic Beautyrest products joining Serta Mattresses in the Ontario Teachers' Pension Plan portfolio.

By taking the mattress maker out of bankruptcy protection, Teachers and its partner Ares Management LLC will become the largest player in a traditionally recession-proof industry, which has been ravaged by the credit crunch. Each company has about a 15-per-cent share of the American market.

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"People tend to finance mattresses, and when credit dried up they couldn't afford to go shopping any more," said Jerry Epperson, a mattress and furniture industry analyst at investment bank Mann Armistead & Epperson Ltd. in Richmond, Va. "This is an industry that never saw a real slump, and it's been shocking to see sales drop as far as they have."

Since record-keeping began in the early 1970s, mattress sales have only decreased on a yearly basis twice - 1982 and 2001. And even then, sales were only down 1.9 per cent. This recession has been brutal for the companies - with sales down as much as 15 per cent in the past year.

In Simmons, the pension fund is buying a 139-year-old company that has now seen six private equity owners since being taken private 20 years ago. Its Beautyrest mattresses were brought to market in 1925 with advertisements showing how even an elephant could get a good night's sleep on its patented coil system while more recent television spots show peaceful partners sleeping soundly as bowling balls were dropped on the other side of the bed.

The mattress maker began seeking a way to restructure its $1-billion (U.S.) debt earlier this year, as sales skidded 19 per cent. The prepackaged bankruptcy restructuring plan announced yesterday will cut debt to $450-million, with Teachers and its partner paying $760-million for Simmons Bedding Co., its U.S. subsidiaries and parent company Bedding Holdco Inc. Simmons Co.

Simmons Bedding subsidiaries in Canada are not part of the deal, although the company said in regulatory filings they'll likely be included once the bankruptcy is finalized.

Simmons will continue to operate with its current management, and will be kept separate from Serta - a point the companies were careful to underscore as they noted that the U.S. government would be reviewing the transaction.

The funds are convinced that as credit markets thaw, consumers will once again turn toward mattresses - which sell for an average nearing $1,500 in the United States, although some of Simmons' top models approach $6,000. A Teachers representative said "the industry fundamentals are attractive - demographics and housing trends, the replacement nature of the products and the industry's history of generating cash flow."

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