By Svea Herbst-Bayliss
NEW YORK (Reuters) -Investment firm Stadium Capital Management wants to shake up the board of bed and mattress maker Sleep Number (NASDAQ:SNBR) Corp following more than a decade of poor returns, according to a letter reviewed by Reuters.
Stadium Capital, which owns roughly 9% of the Minneapolis, Minnesota-headquartered company, said Sleep Number is undervalued and not performing to its potential. In the last 52 weeks, the stock price has dropped 42%. It fell 1.54% on Wednesday to $25.56, sharply lower than during the COVID-19 pandemic when shares topped $140 a share as mattress sales surged.
Pointing to "deficiencies in the boardroom", the investment firm wrote: "We urge you to collaborate with us on a Board refresh that includes a Stadium Capital representative and other new directors with relevant expertise."
The company said its board and management team have engaged regularly with Stadium and "intend to continue that dialogue," adding it "put together a proposal that demonstrates that Sleep Number has listened closely to Stadium Capital and offered an opportunity for Stadium Capital to participate in the selection of a new independent director."
The company said it remains confident in its strategy and is focused on "continuing to strengthen its brand, culture and distinct competitive advantages to drive meaningful value for shareholders, while managing ongoing macro-environment challenges."
The board "failed to oversee accretive capital allocation, effective forecasting and a culture of strong accountability for management," the letter said.
Stadium, based in New Canaan, Connecticut, criticized the board’s decision to authorize more than $630 million in share repurchases at an average price of approximately $90 per share between 2020 and 2022.
The firm also said the board erred by mistaking a pandemic-driven increase in sales as heightened demand for wellness technology.
Stadium Capital had previously asked Sleep Number to add three new directors, including one of the firm's principals, without success.
The standoff sets the stage for a potential proxy fight, with the company's window for nominating director candidates just two months away.
"The Board, as presently constituted, includes long-tenured members who have been part of questionable decisions and would likely not fare well in a contested election next year," the letter said.
Rival mattress companies including Tempur-Sealy and Purple Innovation (NASDAQ:PRPL) have been the targets of successful activist campaigns.