May 21, 2009 12:37:44 (ET)
By Aja Carmichael
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Shares of Sealy Corp. (ZZ) dropped 28% Thursday as investors began trading rights from an offering made by the manufacturer of Posturepedic mattresses.
Suntrust Robinson Humphrey analyst Keith Hughes said the company's rights offering is "a very dilutive transaction" and the stock Thursday declined sharply as the offering's trade settlement date is approaching. On average, it takes about three days to settle the trade, and the rights are scheduled to be active Tuesday. Hughes added, however, investors are able to begin trading the rights under the ticker ZZ.RT as of Thursday.
A company representative wasn't immediately available to comment.
In recent trading, shares of the company fell 28% to $2.40, erasing gains from its last two trading sessions. Earlier, shares of the company, which had a market capitalization of $275.4 million as of Wednesday, fell 36% to an intraday low of $2.15. The stock, however, has risen 101% in the last three months as investors in March began seeing signs of the economy bottoming, which encouraged them to focus on consumer cyclical stocks such as Sealy.
Meanwhile rivals' losses were minor. Tempur-Pedic International Inc. (TPX) fell 6.1% to $10.19 and Leggett & Platt Inc. (LEG) declined 3.6% to $14.31.
"There is a big arbitrage play going on between [Sealy's stock] and the rights and this will continue on for the next month or so," Hughes said.
On Wednesday, Sealy outlined a refinancing plan intended to strengthen its capital position, boost liquidity and extend nearer-term maturities.
Under the refinancing plan, which also eliminates quarterly maintenance tests on the company's debt, Sealy will enter a new $100 million asset-based revolving credit pact maturing in 2012 and issue about $350 million in senior secured notes due 2016. The company will also issue about $177 million in senior secured notes due in 2016 that are convertible into common stock as part of a rights offering.
The rights offering will expire June 25. Every 13 rights will allow the holder to buy a convertible note for $25, and each note will initially be convertible into 25 shares of common stock.
"The new financing is good in the short term as it extends [Sealy's] debt maturity and lowers its overall debt," said Hughes. "But it [all] comes at the expense of the future share price when things improve and get good again." He added that there has been some evidence that Sealy's business has stopped getting worse but a pick-up is still at least several quarters away.
Analysts said in the last two quarters Sealy's performance has been "pretty tough." Although the company doesn't report same-store sales, analysts have estimated that the company's business has shrunk by a third in the last 18 months. The company's performance and reduction in its operations comes as consumers are adapting to living within their means, extending the turnover rate for purchasing big-ticket items, such as mattresses, on their credit card.
-Aja Carmichael, Dow Jones Newswires; 201-938-5218; aja.carmichael@dowjones.com
(END) Dow Jones Newswires
May 21, 2009 12:37 ET (16:37 GMT)
AI
