In Sale to RoomStore, Mattress Discounters' Price Is Slashed

Richmond-based furniture firm RoomStore and another investor have agreed to buy the bulk of Mattress Discounters for about $4.5 million, dramatically less than its $80 million price tag in a deal that fell apart last year.

The investors plan to shut down Mattress Discounters' headquarters and factory in Upper Marlboro and close 15 of 91 retail locations, said Brian D. Bertonneau, general counsel for RoomStore, which will be the majority shareholder. Mattress Discounters has about 200 employees. Bertonneau said he did not know how many employees would be retained.

The stores would keep the Mattress Discounters name and would help RoomStore, which primarily sells Sealy mattresses, expand its selection of mattress labels, officials said.

The nation's 15th-largest bedding company could be sold as early as next week, according to RoomStore officials and court documents. Mattress Discounters had filed for Chapter 11 bankruptcy protection in September, citing the need to reorganize and clear away $9.3 million in unsecured debt.

Officials at Mattress Discounters did not respond to requests for comment. RoomStore declined to name the other investor.

This is Mattress Discounters' second stay in bankruptcy protection: While in Chapter 11 in 2002, it shed more than half of its 300 locations, including its entire California operation. It emerged in 2003 and began expanding again, particularly in the mid-Atlantic. In May 2007, as sales began to wane, the nation's second-largest bedding company, Houston-based Mattress Firm, pulled out of a deal made a few months earlier to buy Mattress Discounters for as much as $80 million. Mattress Firm officials at the time said the deal was not right for the company.

About a year later, Mattress Discounters filed for Chapter 11 again.

The company lost about $3 million in 2007 on $122 million in revenue, according to its most recent bankruptcy filling. In the first half of this year, the privately owned company posted a loss of about $8 million on $49 million in revenue. The losses were driven by slumping sales and rising rents, chief executive Steve Newton has said. This fall it began closing 50 stores in Rhode Island, New Hampshire and Massachusetts, citing the declining housing market and cooling economy.

In previous years the company has had solid revenue growth, according to Furniture/Today, a weekly furniture trade publication that tracks mattress companies, most of which are private. Though 2008 numbers are not yet final, Mattress Discounters' sales were expected to be down like the rest of the industry's, according to David Perry, executive editor of Furniture/Today.

"The industry historically has averaged about 6 percent annual growth for the past 20 years," Perry said. "But now business is in a severe downturn, sales are slumping, and it's more difficult to make money now than it has ever been."

The prospective buyers, who are calling themselves Mattress Discounters Group LLC, have indicated in bankruptcy-court filings that they would close retail operations in Accokeek, Ashburn, Burtonsville, District Heights, Chester, Chesterfield, Clarksburg, Hyattsville, La Plata, Lorton, Mechanicsville, Pikesville, Springfield Towson Town Circle, Westminster and Wheaton. They would not open a store that is now under construction in Manassas. Stores were chosen based on factors including profitability, whether they were in busy retail locations and rent, Bertonneau said.

The investors are looking for other places to cut costs. "We're going through all the contracts one by one, deciding which ones we want and don't," said Bertonneau, referring to basic equipment such as copiers, fork lifts and other material, as well as advertising contracts.

Because Mattress Discounters is in Chapter 11 bankruptcy protection, the sale must be approved by the U.S. Bankruptcy Court in Greenbelt. No other companies had filed competing bids for Mattress Discounters by yesterday's deadline. A hearing on the matter will be held next week, and a decision could come as early as Dec. 3.