Mattress makers Simmons and Serta are planning to dethrone competitor Sealy as the world's largest mattress company in a $760 million deal that includes Simmons filing for bankruptcy.

Simmons Co said on Friday that it has put together a restructuring plan to be sold to private-equity firm Ares Management LLC and a unit of the Ontario Teacher's Pension Plan, which owns competitor Serta.

Together, Serta and Simmons - which will continue to operate as separate companies and brands - will have a bigger share of the market than current world leader Sealy Corp, according to according to market research firm IBISWorld Inc.

Simmons, which is owned by private equity firm Thomas H. Lee, has been negotiating with lenders and creditors since late 2008 as a heavy debt load and a decline in consumer demand squeezed its profits and caused it to miss financial targets required by a loan associated with its 2003 buyout.

The Atlanta-based company said the prepackaged restructuring plan has more than the two-thirds support from its noteholders and lenders needed and will reduce its debt to about $450 million from $1 billion. The deal includes about $310 million in new equity from Serta's owners.

The company will put the plan out to a vote soon and expects to file for bankruptcy in 30 to 60 days, a Simmons spokesman said. The bankruptcy could then take up to an additional two months, he said.


Under the plan, senior bank lenders, trade vendors, suppliers and employees will be repaid in full.

Holders of senior subordinated notes will receive 95 cents on the principal amount due or $190 million and holders of discount notes in the holding company will receive a payout of $15 million on the $269 million in principal, a company spokesman said.

Investors in a $300 million loan that was taken out in 2007 will not be repaid as part of the financial restructuring plan. The loan like the previously mentioned discount notes, paid dividends to its owner.

THLee bought a majority stake in the 139-year old company from Fenway Partners in 2003 in a deal that valued it at $1.1 billion. THLee is the sixth owner in 23 years.

The mattress industry has been attractive to private equity buyers because of the steady cash flow the businesses had before a broad decline in consumer spending.

Sealy is owned by buyout firm Kohlberg Kravis Roberts & Co. It also restructured its debt earlier this year.

The downturn has reached out across the mattress sector. Foamex International Inc, a maker of polyurethane foam used in mattresses; Consolidated Bedding Inc, which makes the Spring Air mattress brand; and retailers including 1-800-Mattress and Mattress Discounters Corp have all filed for bankruptcy.

As of June 27, the Simmons said it had $896 million in assets and $1.26 billion in liabilities, according to regulatory filings. It said it had $67 million in cash.

(Additional reporting by Thomas Hals in Wilmington, Delaware and Santosh Nadgir in Bangalore; Editing by Vinu Pilakkott, Phil Berlowitz; and Carol Bishopric)