Sleep Number Files Chapter 11 to Merge with Sleep Country Canada
1h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
sleep-numbersleep-country
Fazen Markets Editorial Desk
Collective editorial team · methodology
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Sleep Number Corporation is set to merge with Sleep Country Canada Holdings Inc. after filing for Chapter 11 bankruptcy protection on June 12, 2026. The filing in the U.S. Bankruptcy Court for the District of Delaware is designed to facilitate a stalking-horse asset purchase agreement with the Canadian retailer. This strategic move aims to combine the two companies into a dominant North American sleep products entity, with Sleep Country offering approximately $385 million for substantially all of Sleep Number's assets. The transaction requires court approval under Section 363 of the U.S. Bankruptcy Code.
The merger attempt arrives amid a sustained downturn for the premium bedding sector. Consumer spending on big-ticket home goods has contracted for five consecutive quarters, pressured by high interest rates and inflation. Sleep Number reported four straight quarters of declining comparable sales, culminating in a 12% year-over-year revenue drop in its last reported quarter. The company's debt load became unsustainable as earnings faltered, making a traditional acquisition impossible without court-supervised debt restructuring. This follows a trend of retail consolidations through bankruptcy, such as the 2023 merger of Bed Bath & Beyond's assets with Overstock.com.
The 10-year Treasury yield hovering near 4.5% has increased financing costs for leveraged companies. Sleep Number's specific challenge was its reliance on cyclical discretionary consumer spending. The merger represents a defensive consolidation, allowing Sleep Country to acquire a recognized brand at a discount while Sleep Number gains access to a healthier balance sheet. The timing is critical to avoid a potential liquidation, as vendor confidence and liquidity were deteriorating rapidly.
Sleep Number's market capitalization had fallen to approximately $120 million prior to the filing, down from a peak of over $2.5 billion in 2021. The company carried a long-term debt burden of nearly $400 million against a trailing twelve-month EBITDA of negative $15 million. The proposed stalking-horse bid from Sleep Country values the assets at around $385 million, which includes the assumption of certain liabilities.
The following table compares key financial metrics for the two companies prior to the announcement:
| Metric | Sleep Number | Sleep Country Canada |
|---|---|---|
| Market Cap | ~$120M | ~$950M CAD |
| LTM Revenue | ~$1.8B | ~$1.1B CAD |
| Net Debt/EBITDA | N/A (Negative EBITDA) | 1.8x |
Sleep Country's offer represents a significant premium to Sleep Number's pre-announcement equity value but a discount to its total enterprise value. For context, the S&P 500 Consumer Discretionary sector is up 4% year-to-date, while Sleep Number shares had declined over 70% in the same period.
The merger creates a clear peer-group loser in Tempur Sealy International (TPX), which now faces a larger, consolidated competitor with a direct retail footprint in Canada. TPX could see market share pressure, potentially impacting its revenue by 2-3% in the North American market. Suppliers like Leggett & Platt (LEG), which provides bedding components to both companies, may benefit from increased order stability from a larger, more financially secure entity.
A key risk to the deal's success is potential bidder competition. The Chapter 11 process allows for competing offers, which could lead to a higher final sale price but also prolongs uncertainty. The primary limitation is integration risk; merging a company emerging from bankruptcy with a healthy operator presents significant cultural and operational challenges. Hedge fund positioning data indicates elevated short interest in Sleep Number had reached 25% of its float, suggesting a sharp covering rally is unlikely despite the buyout offer.
The bankruptcy court will hold a hearing to approve the bidding procedures, likely scheduled for late June or early July 2026. A final approval hearing for the sale is expected within 90 days. Markets will watch for competing bids from private equity firms or other strategic buyers, which must surface during the court-supervised auction process.
Key levels to monitor include Sleep Country's stock price, which will act as a barometer for investor confidence in the acquisition's merits. A break below its 200-day moving average, currently around $25.50 CAD, would signal significant doubt. The successful conclusion of the deal hinges on the court's approval and the absence of material objections from Sleep Number's creditor committees.
In a typical Chapter 11 sale, existing shareholders are usually wiped out or receive minimal recovery after senior creditors are paid. Sleep Number's stock will likely be canceled upon the deal's completion. The $385 million purchase price is intended to satisfy the company's secured debt obligations first, leaving little to no value for common equity holders. This process underscores the high risk of investing in companies facing severe financial distress.
This transaction is structurally similar to the 2023 acquisition of Bed Bath & Beyond's intellectual property by Overstock.com. Both involved bankrupt retailers selling their brand assets to a competing online-focused retailer. A key difference is that Sleep Country is acquiring operating stores and a manufacturing footprint, not just a brand name. This indicates a belief in the viability of Sleep Number's physical retail model post-restructuring.
Sleep Country gains immediate scale and enters the U.S. market with an established brand, avoiding the high cost of organic expansion. The deal is accretive to earnings, as Sleep Country is acquiring assets at a discount to their replacement cost. It also provides diversification away from the Canadian market and creates opportunities for supply chain synergies, estimated to be worth $30-50 million annually within three years.
The merger consolidates a distressed asset into a stronger competitor, reshaping the North American bedding retail landscape.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
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