Select Comfort Corp. (NASDAQ:SCSS)

CAPS Rating: 3 out of 5

The Company's principal business is to develop, manufacture, market and support premium quality, adjustable-firmness beds and other sleep-related accessory products.

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Player Avatar Intell (64.33) Submitted: 6/25/2008 1:00:52 AM : Underperform Start Price: $2.25 SCSS Score: -811.24

Who's gonna pay all that money for a "quality" bed when they can't put gas in their car?

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Member Avatar okanrd (< 20) Submitted: 10/19/2008 1:51:40 PM
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First and foremost, what is a good nights rest worth to you? In these trying times with the economy, it is imperative that one does not compromise their own comfort. One can not put a price on the quality of their sleep. However, one can make the best decision by investing in a mattress that will last for 20 years. How can you beat that? Especially when there is a mattress for every back and budget.As far as the sarcastic quotation marks encasing "quality" referring to the beds, it is clear that the beds have a good reputation, or else no one would own the bed. Owners wouldn't suggest the same investment in a bed to their friends and family if it was not viewed as a quality product.

Member Avatar marginjim (92.68) Submitted: 8/11/2009 11:19:07 AM
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I just finished reading most of a book-sized description of the Select Comfort proposal (scheduled for a vote Aug 27). Here is a summary of my understanding of the situation.

Beginning in '06 SC got a $100 million revolving line of credit from a consortium of lenders. It, of course, had certain scheduled repayment and interest provisions. Unfortunately, starting shortly after the credit line was established, the housing market tanked and sales of new mattresses began to deteriorate badly -- and kept getting worse. This led, in early '08, to the first of several negotiated amendments to the line of credit as sales continued to decline and SC became unable to conform to the original payment conditions.

In March of '08, the company began the process of looking for a way out of the hole they continued to fall into. Over the course of the next year or so, three different "saviors" offered to provide sufficient capital to keep the company functioning. These offers, of course, came with a price that sometimes involved bankruptcy, other times offered substantial dilution of stockholder value and, if I read it right, once included both.

SC kept negotiating with these offerers, trying to find a solution that, according to their description, did the least harm to its shareholders. The extended description of the "fairness" evaluation that was part of this report persuaded me that the effort to protect shareholders was substantial.

Ultimately, these efforts were superceded by negotiations with a private equity firm called Sterling Partners.
When you see the result of the negotiations with Sterling Partners, which was, by far, the best deal, you can understand how painful the other offers were.

Per the agreement (subject to shareholder approval on August 27th) SCSS will issue 50 million new shares of common stock. This represents a more than doubling of the company's current 49 million shares. These are to be sold to Sterling for $35 million, giving Sterling a bit more than 52% of the company. The new majority owner will then seat 5 of the 9 members of a newly-constituted Board and replace the Chief Operating Officer.

By the time the Board voted 7 to 2 to pursue this proposal with the shareholders, the alternatives had been winnowed down to two: this one and a similar issuance of additional shares, which would be offered to current shareholders. This latter option is the one that the two dissenting shareholders preferred. It was rejected by the others because there was no assurance that current shareholders would buy enough new stock to meet the company's needs and, because of that uncertainty, the Lenders were not as enthusiastic about this option as they were about the Sterling offer.

One more thing that seems to be an important element in this whole process: SC management seems to be happy (under the circumstances) to have Sterling Partners in the driver's seat. It is expected that, given who the Sterling Partners are and how they seem to operate, the company will get quite a bit more than just this necessary money. They will, it is expected, get some folks whose competence and way of doing business will have a very positive effect on the company's future.

That, fellow Fools, is where SCSS stands (or lies down). I'm voting my shares to support the proposal. I"m thinking that it would probably be a good idea for you to do the same.

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