Mattress Firm to Acquire Sleep Train

Mattress Firm Holding Corp. today announced that it has entered into an agreement to acquire all of the outstanding equity interests in The Sleep Train, Inc. Mattress Firm will acquire the leading West Coast based bedding specialty retailer for an aggregate purchase price of $425 million, subject to working capital and other customary adjustments. As further consideration, Mattress Firm has agreed to assume certain additional liabilities totaling approximately $15 million. Sleep Train operates approximately 310 specialty mattress retail stores located in California, Oregon, Washington, Idaho, Nevada and Hawaii.

The closing of the acquisition is expected to occur by the end of the fourth fiscal quarter of 2014. The purchase price payable to the selling shareholders will be reduced by certain payment obligations of Sleep Train, including the repayment of certain indebtedness. Ten percent of the adjusted purchase price is payable to the shareholders of Sleep Train in shares of common stock of Mattress Firm, having an aggregate equivalent value, as calculated in accordance with the purchase agreement. The remainder of the consideration payable to the shareholders of Sleep Train will consist of cash. Mattress Firm expects to receive future annual cash income tax benefits of approximately $11 million over the next 15 years from deductible tax basis goodwill generated from the transaction, subject to its ability to generate future taxable income. The transaction has been unanimously approved by the Boards of Directors of both companies and the trustee of The Sleep Train, Inc Employee Stock Ownership Plan.

The retailer plans to continue to operate under both the Mattress Firm and Sleep Train's family of brands and will maintain a West Coast corporate headquarters near Sacramento, California.

"This unique and transformational opportunity will meaningfully enhance Mattress Firm's position within the specialty retail bedding industry," stated Steve Stagner, Mattress Firm's president and chief executive officer. "The acquisition of Sleep Train will establish Mattress Firm as the first border to border, coast to coast multi-brand mattress specialty retailer in the United States, with pro forma sales approaching $2 billion a year. It allows us to share best practices and integrate two industry leading management teams, positioning Mattress Firm for accelerated growth. Just as importantly, these two companies are ideal partners, aligned on our passion for culture and emphasis on core values. Not only will our employees and shareholders benefit from this union, but the combination of Mattress Firm's proven relative market share model and strong operating efficiencies with Sleep Train's exceptional ability to deliver robust sales per store is expected to deliver significant synergies and provide our customers with a greater level of selection, service and convenience."

Stagner continued, "We and Sleep Train are excited about the numerous opportunities this acquisition will create for our combined 5,000 employees as well as our vendors, business partners and shareholders. Upon closing, Dale Carlsen, the chief executive officer of Sleep Train, will become president and chief strategy officer of the Company and will join the Mattress Firm Board of Directors as Vice Chairman. Rob Killgore, chief operating officer of Sleep Train, will become co-chief operating officer of the Company with current Mattress Firm chief operating officer, Ken Murphy."

"Since 1985, Sleep Train has provided our customers with a good night's sleep and been a strong partner in our communities,” Carlsen said. “Mattress Firm, through Steve's leadership, has shown their commitment to their customers and their communities as well. I look forward to bringing our two teams together for the benefit of our customers, our employees and the communities we serve. Today's announcement represents the hard work of the Sleep Train employee owners who now together with their Mattress Firm peers will move to transform the bedding retail industry. This compelling, value-enhancing transaction would not have been possible without both companies being so aligned in our culture and our visions. The combination will place our talented team members onto a national platform with enhanced growth and development opportunities. I am excited about our future with the Mattress Firm team and look forward to completing the transaction so that we can realize the benefits for all of our stakeholders."

Compelling Strategic Rationale from Mattress Firm:

Expands footprint into the West Coast, including key strategic markets

◦ Adds over 310 retail store locations in major markets in California, Washington, Oregon, Nevada, Idaho and Hawaii from a leading market share player with limited overlap.

◦ Provides customers with great value, convenience and choice.

Fortifies Mattress Firm as the leading mattress specialty retailer in the United States

◦ Pro forma sales approaching $2 billion annually and total enterprise locations exceeding 2,000 retail store units.

Generates significant synergistic opportunities

◦ Over $20 million of identifiable cost and revenue synergy potential by the third year after closing.

Creates opportunity to begin leveraging national scale benefits

◦ Allows for enhanced nationwide delivery and distribution, advertising efficiencies and exclusive partnership opportunities.

Adds high-volume, established locations with a strong and experienced leadership team

◦ 29 year history of well-positioned, long-term leases in "hard to enter" trade areas.

◦ Immediate scale with a sustained and profitable multi-brand organization.

◦ Experienced and disciplined culture that is highly aligned with Mattress Firm.

Enhances financial performance and improves growth prospects

◦ Estimated to achieve mid-single digit earnings per diluted share (EPS) percentage accretion, on a generally accepted accounting principles basis before one-time costs, in the first full year after closing.

◦ Combined business is anticipated to generate significant free cash flow.

◦ Establishes a foundation to execute on our proven relative market share model by opening additional stores in West Coast markets to achieve store penetration levels commensurate with existing Mattress Firm markets.

Barclays, Inc. acted as exclusive financial advisor to Mattress Firm. Norton Rose Fulbright acted as legal counsel to Mattress Firm in connection with the transaction. Prairie Capital Advisors, Inc. provided a fairness opinion to the trustee of The Sleep Train, Inc. Employee Stock Ownership Plan in connection with the transaction. Shartsis Friese LLP acted as legal counsel to Sleep Train in connection with the transaction.

For more information, visit www.mattressfirm.com.

About Mattress Firm: Houston-based Mattress Firm is a high growth specialty retailer, recognized as one of the nation's leading specialty bedding companies, offering a broad selection of both traditional and specialty mattresses, bedding accessories and related products from leading manufacturers. With more than 1,500 company-operated and franchised stores across 36 states, Mattress Firm has the largest geographic footprint in the United States among multi-brand mattress specialty retailers. Mattress Firm offers customers comfortable store environments, guarantees on price, comfort and service, and highly-trained sales professionals.

About Sleep Train: Rocklin-based Sleep Train is a specialty retailer, recognized as the West Coast's leading bedding specialty retailer, offering a broad selection of both traditional and specialty mattresses, bedding accessories and related products from leading manufacturers. With more than 300 company-operated across six states, Sleep Train has the largest geographic footprint on the West Coast among multi-brand mattress specialty retailers. Sleep Train delivers its customers healthier lives, one mattress at a time, through its service oriented selling approach and strong community outreach.

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