Good day, ladies and gentlemen, and welcome to the Special Joint Meeting with Tempur Pedic and Sealy. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, today's call is being recorded. I would now like to turn the conference over to your host, Mark Ruppe with Tempur Pedic.
Sir, you may begin.
Thanks, Shannon. Thank you for participating in this morning's call. At 7 a. M. This morning, Tempur Pedic and Sealy announced the signing of a definitive agreement to create a $2,700,000,000 global bedding provider.
Joining me in Lexington headquarters are Mark Sarvey, President and CEO of Tempur Pedic Larry Rogers, President and CEO of Sealy Dale Williams, EVP and CFO of Tempur Pedic and Jeff Ackerman, EVP and CFO of Sealy. After our prepared remarks, we will open the call for Q and A. Forward looking statements that we make during this call are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward looking statements, including the company's or Sealy's expectations regarding sales, earnings or the proposed transaction involve uncertainties. Actual results may differ due to a variety of factors that could adversely affect the company's or Sealy's businesses.
The factors that could cause actual results to differ materially from those identified include economic, regulatory, competitive, operating and other factors discussed in the press release issued today. These factors are also discussed in each of the company's respective SEC filings, including, but not limited to, annual reports on Form 10 ks under the heading Special Note Regarding Forward Looking Statements and or Risk Factors. Any forward looking statement speaks only as of the date on which it is made. Neither the company nor Sealy undertakes any obligations to update any forward looking statements. A reconciliation of adjusted EBITDA and pro form a adjusted EBITDA can be found in the press release.
Unless otherwise noted, the commentary on this call should be considered to be based on continuing operations. With that introduction, I will turn the call over to Mark Sarvey.
Thanks, Mark. Good morning, everyone. Thanks for joining us. I want to also thank Larry and Jeff for being here with us. This morning, Tempur Pedic and Sealy announced the signing of a definitive agreement to combine.
This is a transformational deal that brings together 2 great companies, each with globally recognized brands to create a $2,700,000,000 global bedding provider. I'll provide details on the transaction and discuss the strategic rationale for this combination. I will then turn the call over to Larry Rogers, who will share his vision for the combined company. Following Larry's comments, I will conclude our prepared remarks with some final comments. And after that, we'll open the line for questions.
Under the terms of the transaction, Tempur Pedic will acquire all of the outstanding equity of Sealy for $2.20 a share, representing a premium of approximately 23% to Sealy's 30 day average closing price on Wednesday, September 26, 2012. In addition, Tempur Pedic will assume or repay all of Sealy's outstanding convertible and non convertible debt for a total transaction value of approximately $1,300,000,000 This is an all cash transaction that will be financed with cash and $1,900,000,000 of new indebtedness, including the refinancing of Tempur's existing debt. Tempur Pedic intends to finance the acquisition through debt financing for which BofA Merrill Lynch has already provided customary commitment letters. The pro form a expected leverage of the combined company will be approximately 4 times net debt to EBITDA. The combined company will have strong cash flow that will enable rapid debt reduction and we're comfortable with this level of leverage.
The transaction has been approved by the boards of directors of both companies. Stockholders holding approximately 51% of Sealy's outstanding common stock have executed a written consent approving the transaction. No additional shareholder approvals are required to complete the transaction. The transaction, which is subject to customary closing conditions, including regulatory approvals, is expected to close during the first half of twenty thirteen. Tempur Pedic and Sealy will operate independently.
And Larry Rogers, who has been with Sealy for 33 years, will remain the CEO of Sealy and report to me. I'd like to provide briefly provide some context now to underpin the strategic rationale for the combination. Since its creation nearly 20 years ago, Tempur has driven the growth of the specialty segment of our industry and has raised consumer satisfaction and the recognition that it's worth investing in a good night's sleep. As a result, we've seen strong growth in sales and profits over the years. Today, as we had always anticipated, our success in growing this specialty category has attracted new entrants.
And these entrants have had some success. And as I have said before, this has recently had an adverse impact on our business. However, as I have also said, when the new playing field is established, we believe our strong brand and our focus on product innovation will allow us to outgrow the industry and to offer more value to our retailers and consumers. We remain committed to product innovation and effective consumer communication, the linchpins of our success to date. We'll be launching new Tempur products at both the Winter and Summer Vegas shows in 2013, and we'll continue to invest significantly in advertising.
However, this is a different competitive environment from the one we were in historically. Where once Tempur was the only major viscoelastic mattress on the market, today it is the leading viscoelastic. And we face the broad based competition that is the norm in the mattress industry. We're competing in a single area of the market against competitors who have benefits of scale by virtue of competing in all segments of the market. The merger with Sealy enables us to compete across the whole market, to be a leader in all technologies, to have access to essentially all channels of distribution, and at the same time provides the opportunity for increased efficiencies that will enable us to compete effectively in this new environment.
We'll be able to leverage our R and D across all mattress, pillow and base technologies and we will be able to combine technologies and brands to create new and unique products. Further, the broad portfolio of products and brands will together smooth the inevitable cyclical performance of individual product lines as they move from introduction to refresh. So the overarching theme is pretty straightforward. Tempur Pedic and Sealy have highly complementary products, brands, technologies and geographic footprints. The combination will provide significant opportunity for both entities to leverage each other's capabilities to grow beyond each company's current footprint and to increase efficiencies across the entire supply chain.
I think of the value of this combination in 5 key areas. Number 1, it creates a comprehensive portfolio of iconic brands. Together, Tempur Pedic and Sealy will have the strongest brand portfolio in the industry with the most highly recognized brands, including Tempur and Tempur Pedic, Sealy, Sealy Posture Pedic and Stearns and Foster. The combined company's brand portfolio will have some of the best known brands in North America, but also South America, Europe, Asia and Australia. Number 2, a complementary product offering.
This combination will create the most comprehensive suite of bedding products available in the market. But it's not just product, it's also complementary technologies. Sealy's strength and expertise in innerspring and hybrid innerspring mattress technologies fit seamlessly with Tempur Pedic's position in viscoelastic mattresses, adjustable bases and pillow technology. Further, the company will be able to invest more in R and D to strengthen existing products as well as to develop innovative new offerings to better meet the needs and preferences of consumers and retailers. 3, a truly global company.
Tempur Pedic and Sealy have a highly complementary global footprint with distribution in over 80 countries. The combination provides both companies access to countries that represent future growth opportunities. Therapeutic has a strong presence around the world and particularly in North America, Europe and Asia, while Sealy is represented in a meaningful way in North America and Argentina and Asia. The Sealy brand is also well recognized in many other key global markets through its international licensees and joint ventures. 4th, it drives significant shareholder value creation.
The combination is expected to be accretive in the 1st full year of operations with annual cost synergies from the combined operations expected to be in excess of $40,000,000 by the 3rd year. These will be primarily realized through purchasing, supply chain and increased efficiencies. In addition, the combination has the potential for revenue synergies as a result of broader product offering and access to more channels including the international expansion. 5th, the combined company has strong financial characteristics. Together, Tempur Pedic and Sealy had combined pro form a adjusted EBITDA of $504,000,000 based on the 12 months ended June 30, 2012 for Tempur Pedic and May 27, 2012 for Sealy.
The combined company will have strong cash flow that will enable rapid debt reduction and continued investment in growth initiatives. The combination pairs 2 strong management teams with extensive industry and global consumer products experience. Tempur Pedic and Sealy have common corporate cultures focused on consumer driven product innovation to deliver the best quality of sleep and building strong retailer relationships. Before turning the call over to Larry, I would like to say that I am extremely pleased that Larry will remain as Sealy's CEO following the close of this transaction. Larry's industry experience, strong customer relationships and his enthusiastic support for this combination will be invaluable.
So let me turn it over to Larry to share his views.
Thank you, Mark, and I assure you that I'm very enthusiastic about this combination. Today marks another significant milestone in Sealy's 131 year history. Becoming a part of the Tempur family means that Sealy will now be aligned with a strategic partner with a deep interest and long term commitment to growing brand equity. Sealy's strong brand recognition as a premium traditional mattress maker coupled with Tempur's leading position in premium specialty bedding products transforms a combined company into a global leader that spans all price points and technologies creating an unparalleled opportunity for our customers, consumers and employees. Beyond the obvious breadth of product, there are and will be meaningful synergies that will become more evident as a combined company pursues its strategy.
The new company will have in house expertise and capability in every key bedding technology from visco to innerspring to latex to adjustable bases. Sealy's strong international presence in Canada, Mexico, Latin America and Asia coupled with its family of international licensees is highly complementary to Tempur's existing global footprint and Tempur's global growth strategy. This acquisition will present a great opportunity with the company to grow. And at this time, I would like to turn the call back to Mark for final comments before we open the session to questions and answers.
Mark? Thanks, Larry. So before opening for Q and A, I'd like once again to reiterate why the deal make strategic sense for both companies. Tempur Pedic and Sealy together will have products for almost every consumer preference and price point, distribution through all key channels, in house expertise on almost all key bedding technologies and a world class research and development team. In addition, our global footprint will span over 80 countries.
With that, operator, please open the line for questions.
Our first question is from Budd Bugatch with Raymond James. You may begin.
Good morning, Mark. Good morning, Larry. Good morning, Jeff. Good morning, Dale. Let me just give you my congratulations.
I think this is strategically brilliant and I congratulate you on the combination. Just a couple of questions. As you go down the road here, you're starting with a 4 times leverage. How do you see that developing over time? Do you still have the same goals to get down to the, I think, 1.5 to 2 times or how do you feel about that?
Yes, Budd, this is Dale. As we have modeled the business conservatively, we're starting out a little over 4 times debt to EBITDA leverage. And we believe that within 4 to 5 years, we will have the business delevered back down into the 1.5 to 2 times range. And that frees up a lot of opportunities to do other things. So we do believe, as Mark said, this combination will have outstanding cash flows and we will delever very quickly.
Okay. I understand. And do you see joint marketing events or joint marketing and joint product development or did the independent nature of both companies will prevent that at least for the foreseeable future?
Yes, the 2 companies will run independently, obviously until closing, but afterwards too. We do intend to keep the 2 companies separate. So, I don't foresee joint marketing. What I do foresee, however, is leveraging each other's product development I think there's opportunities for both of us to teach each other. And I think that's what we'll see that's what we're going to see first.
Larry, anything you'd add to that?
No, I don't think so. I think that's an accurate portrayal of how we've discussed the business and we're just very excited about the new doors that I believe this will open for both companies.
Okay. And Mark, when do you think you might see some of that initial new product development? The deal won't close until early 2013, is that correct?
Yes. We're anticipating closing in early 2013. As you know, this will have to go through the normal regulatory process. And our best estimate is that's what it's going to take right now. And then I think that what will I think that the working together on joint development will start at that point.
So, it's hard to put a timeline on when it'll actually be seen in the market. But I mean, it will be something that we think that provides great opportunity in the reasonably near term.
Okay. Finally, Larry, I'm delighted that you're going to stay on as CEO. Personally speaking, you're just too much you're too young to retire. So, that's great news.
Well, thank you for both of those comments. Okay. Thank you. Bye bye. Thanks, Budd.
Thank you. Our next question is from John Bey with Stifel Nicolaus. You may begin.
Good morning and my congratulations as well. I guess the obvious, the antitrust breakup fees, any discussion around that?
Let me just say this that the contract that we've struck is a relatively normal there's nothing very special about it. It's been filed in the 8 ks, so all the details are there. There is standard breakout fees and so on in there, but we don't anticipate great issues with the regulatory, but we're going through the process.
Okay. And then if I'm not mistaken, this combined share is less than the Serta Simmons parent company combined. Is that correct?
John, as we all know, measuring market share is an imprecise sport in this industry. And we're not going to make a call exactly on market share. I think you may be right, but I'm not here to I'm not going to make a specific comment on that. I think
your stock has been depressed here and we're now doing this all cash. Would there be a desire to perhaps get that leverage ratio down quicker with some equity infusion were the stock to rise appreciably or you're pretty committed to know we're comfortable with this debt leverage and we'll just pay it down over time?
John, this is Dale. We are pretty comfortable with this debt leverage. We believe that as I mentioned before, the cash flow characteristics of both companies and in combination with some synergies, the cash flow will allow us to delever very quickly. I would say that we will be bringing some of our international cash back and using our international ongoing operations to help fund this and help delever the company.
Okay. And then I'm curious if you could finally just discuss a little bit, it strikes me as though the international synergies for revenues are potentially higher than maybe the U. S, at least that's my initial reaction. And wondering how Sealy's strength in some of these markets may help Tempur go direct sooner and or the reverse how Tempur may benefit Sealy internationally? Thank you.
Look, John, it's Larry. Good morning. Certainly, the international or more global footprint that we both share has been a much talked about topic between us. We think in fact that that is one of our focuses going forward. So we would agree to the point that you're making.
We think it's going to give both companies access to more footprint internationally in an area that we think there's significant growth and pools of profit. And as soon as we get through the initial stages that you go through with any such merger of this nature and this size, we'll certainly probably have more to say about that on future calls.
Yes, I concur. I think the really good word here is complementary. If you look at it in detail, if you look at it by continent, we have some overlap. We have we're in the second continent. But if you look at it country by country, there's places where both sides can help each other.
So, once obviously, we have to wait until we get through the closing. But Larry and I have talked about this a lot. It's exciting opportunity. Thanks. Good luck.
Thank you. Our next question is from Brad Thomas with KeyBanc Capital. You may begin.
Thanks. Good morning. Good morning.
I wanted to just follow-up
on the idea that the 2 companies will be run independently
and just ask
a little bit more color on what that means and why you wouldn't try and integrate them to a greater degree?
The way the company's the first thing is this is that the 2 companies are both committed to growth. Independent of our prior to this announcement, we're both committed to growth. We and the Tempur are committed to this or I've got to learn to stop saying we. But anyway, the Tempur company as was and the Tempur brand is as committed as ever to its belief that specialty is growing, that Tempur is the leader in specialty, that our product innovation can drive growth in specialty and can drive our share of growth in specialty. And that hasn't swerved.
And Larry will say that the growth the potential growth across the portfolio of brands in his portfolio is also good for growth, but has great growth potential. But both of us have or the 2 companies have different ways of going to market. The way our structure is, the way we go to market is different. And that will stay the same. What we're looking at is by putting the 2 together, there are things that we can share that will benefit both sides.
So, it's essentially the back of the or the back end of the organization that's going to be where we'll do the sharing initially, and the front end is going to be is going to remain independent.
Great. I appreciate the color there. And if I
could just follow-up then on the cost synergies, any areas in particular you could highlight? And how confident do you feel in that $40,000,000 number?
We feel pretty good about the $40,000,000 And the $40,000,000 is primarily, as we list on the press release, it's largely purchasing and value and distribution. Let me just read what we've got here. Purchasing and supply chain, yes. I mean those are the 2 biggest single elements. If you think about it, there are obviously much we obviously have a much more detailed list of opportunities.
But when you look at it from a big broad scale, we both buy a lot of similar things. We have excellent opportunities to combine that and get the benefits of scale. Great. Thanks so much.
Thank you. Our next question comes from Reza Vahdat with Barclays. You may begin.
Yes. Just in terms of the cost savings that you just were talking about, if it's a procurement type savings, one would think that the savings would accrue to you in the early part of the 3 year timeframe that you laid out? Those would be initial savings. What's the type of cost savings that will take longer to achieve in your mind?
This is a big topic and it's detailed. There's a lot of behind it. But I would say that one good example is the distribution system that Sealy has is very efficient and capitalizes on the fact that Sealy has a lot of points from which to distribute. Because of the way that we have been structured, we are less efficient. Over time, there will be ways to put those 2 together that we can get the best of both worlds.
But that will take a little while to make it happen.
I see. And then as far as your customers, clearly, you have a lot of common customers. How do you think that they will view this transaction?
Reza, it's Larry. Hi, Larry. Good morning. I believe that it's going to be a very, very positive message for our customers. It's going to allow us to continue to not only invest at current levels in innovation, but probably step that up a bit.
We all know that innovation makes its own market. It drives customers into points of sale. It can pull forward the purchase cycle if the innovation is very consumer relevant for the marketplace. So, we believe that the customer is going to be very happy to see us driving brand equity and driving customers into their stores. We're both very passionate as far as the companies go about staying focused on this.
I think both Sealy and Tempur has proven that it's very, very focused on brands and that's what drives the consumer to market. So we really see like this is a win win for everybody involved in the transaction, not only our retailers, but the end consumer and of course the very important constituent for us, our employees.
Got it. And then maybe for Dale and or Jeff, any thoughts on the form of debt that you think you will be raising if it's bank debt bonds or some combination?
Yes, Reza, we put details of that into the 8 ks. Our commitment letter with Bank of America Merrill Lynch calls for a as you would imagine a multifaceted facility, some Term A, some Term B, some subordinated debt as well as a revolver. The structure that we believe that we will implement is disclosed in a lot of detail in the 8 ks that we sent out this morning.
Thank you much.
Thank you. Our next question is from Keith Hughes with SunTrust. You may begin.
Thanks. Guys, I know it's going to be kind of hard to hear me in a train station, but Mark, I'd like to hear your comments in light of the deal just on where you think specialty growth is and specifically viscoelastic specialty growth. By moving in with Sealy into their predominant innerspring, do you think we're hitting a ceiling on that? Is it just changing in the future? Where do
you stand on that topic?
I don't know if you heard Keith just a few minutes ago. I was saying that I remain as convinced as ever and nothing has changed. Specialty is going to continue to grow. And all indications of that is the case that consumers increasingly really like specialties and they're prepared to pay. They're prepared to invest in producer.
And that we are going to remain the leader
in the specialty category both because of our brand and because of our investment in
innovation and because of our investment both because of our brand and because of our investment in innovation and because of our investment in markets. So that is still very much in our core belief. But what we're doing here with this merger is that by getting by kind of spreading our appeal across all consumer types and all consumer price points and all consumer technology preferences with Larry and the Sealy team. What I think is going to happen is that we're going to get the opportunities to make innovation and brand building or leveraging innovating product and leveraging brands in such a way that we can capitalize on this even more on the growth on VSCO and at the same time look for more products and brands and products that leverage the brands in new innovative ways that are potentially new to the industry. But my belief in EVISCO and its growth potential has not swayed.
And one final quick question. When you say run them separately, is that for a certain period of time or will that be for an indefinite period of time?
It's for an indefinite period of time because there's no definite end. I mean, do you think things will evolve and change over time, but there's no as we've planned it and as we've talked about how we're going to do it, this is the plan. Okay. Thank you. Thank you.
Thank you. Our next question is from Jessica Schoen with Barclays. You may begin. Good morning, everybody.
Good morning.
Just to follow-up on Russ' question about your customers. I was just wondering what kind of changes we can anticipate on your relationship or your arrangements with any of those major dealers?
Jessica, it's Larry. Look, I think both companies have very strong relationships with our retail partners. I see that only getting stronger. I think customers are looking for partners that can help them grow and help them expand and again bring healthy product to their marketplace to allow them to attract the right class and price point customer into their stores. So we believe once again that this is going to be a very positive piece of news, not only for the broader industry, but for our customers in particular.
Both companies are very customer centric.
Jessica, and I would just add to what Larry says that if we think about it in 3 buckets, we think, 1st of all, what we all know, we and the retailers, we all know is that what really drives sparks of growth is great new products that really capture the imagination of the consumer. And we can all point to examples of where that's really driven growth. And that's what we're committed to doing, innovating new products and leveraging the strong portfolio of brands we have. Secondly, we believe that the combination of the 2 companies can help us over time improve service, the way that we're able to service our customers, which obviously is crucial to our retailer partners because it's obviously they're working efficiency is crucial to them and will help us improve that. And third, the building of brands that are differentiated and bring consumers into the store is something that is in fact the holy the mother lode, I should say, in terms of trying to accelerate people's repurchase cycle.
So, we'll be focused on these three things that we think, obviously, retailers are going to be very interested in.
Okay. And then, just following up on the last point with the new products. As we try to think about the revenue synergies that you were talking about, I was wondering if you could just provide a little bit more color or examples on some of the incremental channels or other areas like that where you expect to gain those synergies?
So, I'm not going to do that right now because it's obviously first of all, we're very early in the process. But secondly, that's it's a little too early for me to want to talk about that right now in specific. Okay.
Well, thank you for taking my questions. Okay. Thank you. Our next question comes from David MacGregor with Longbow Research. You may begin.
Good morning, everyone, and congratulations on the deal. Thank you. I guess there's been a few questions asked about the customers. Maybe I could try coming at this from a little bit of different angle. I wonder if you could share with us I'm sure you've done this work, but just what percentage of the pro a revenues is going to be from retailers where the combination of Tempur and Sealy together exceeds 40% or 50% of the floor?
That's not something that we David, we wouldn't even if we had that information, because it's proprietary to our customer base, we would not share that on a call like this.
Okay. Just thought we'd give it a try. You've talked about the revenue synergies and as an opportunity, but you haven't quantified that to the same extent that you quantified the cost synergies. Is it fair to say that revenue synergies in year 1 are de minimis and that that's more of a year 2, year 3 kind of opportunity?
De minimis might be too strong of a word, but it is something that will take a little while to build and we have deliberately not specified them. Obviously, the underpinning of the reason for this deal is the revenue synergies in the long run. That's why we're doing And as you can hear, we think that they're quite significant. But they will take time, and so you're right to think of them as ramping over the 3 year period.
Okay. And then you've talked about $40,000,000 I think of cost synergies. Can you say how much of that you would expect in the 1st year?
We haven't broken that out. We haven't broken that out.
Okay. Do you think just conceptually it could be half of that?
I'm not playing it. It will build over time.
Okay. And the last question, just is there any way you can help us with some kind of a pro form a contribution margin for the company?
On a combined basis?
Correct. Pro form a.
David, we'll in time we've got a lot of processes we have to go through here in terms of regulatory, in terms of planning. In time, we'll disclose more about the model, but we're not going to get into detailed model building today.
Okay. Thanks very much. Congratulations again. Thank you.
Thank you. Our next question comes from Carey Martinson with Deutsche Bank. You may begin.
Hi. It's Karru Martinson with Deutsche Bank. In terms of the timing for the deal completion sometime in the first half of twenty thirteen, the Sealy notes step down to the new call in March. I mean, is that kind of the timeframe that we're looking at? Or should we expect this earlier than that?
Hey, Karru, it's Jeff. So as far as the timing of the transaction, I mean, that's going to, as we talked about, be dependent on regulatory and then the notes step down that you're talking about, the senior secured notes step down in April.
In April. Okay. And then when we look at the savings here from the back office, the $40,000,000 I mean, have you given any thoughts here to the scale of potential savings from the front office when we go forward, let's say, over the next 5 years or so, when you guys truly are kind of 1 company with 1 portfolio of products that you're presenting to your customer base, what the opportunity is there?
No, we haven't. And we haven't modeled it because that is what our plan is at this moment.
All right. And then from international, Sealy had exited some of its international markets. Tempur has certainly been stronger internationally. What's the thought process of bringing Sealy back into some of those markets?
Well, again, as Larry said, we think there is great Sealy is well represented both in countries and Larry, I'll ask Larry to say that to Bill on this, but let me just one brief introduction. Sealy is well represented around the world, but not only in its own name, but by its licensees. Not only in its own form, but in its licensees. But where we think that there are clearly opportunities over time for these for the combination of Sealy and Tempur to work together, both in those countries where today Sealy has licensees and where Sealy has direct operations.
And to add a little more color to what Mark has just said, our international business continues to perform. So while we have not technically exited Europe or Brazil, we converted it to a different model and those models are accretive. So it's proving to be the correct decision. We will revisit those decisions as time and opportunity allow us to. So we're still very much focused on international as is Tempur.
And I do think the more important piece of that is I think it's an area where we can certainly help each other.
Thank you very much guys. Appreciate it and congrats on the transaction.
Thank you. Thank you. Our next question comes from Carla Casella with JPMorgan. You may begin. Most of my questions have been answered, but can you just tell pro form a who your largest suppliers will be?
Will it be Foamix will be number 1? And then how long your existing contracts may go with your largest suppliers?
Yes. Again, we're not going to get into customer suppliers type information that some of that has remained proprietary even between the companies for regulatory reasons and will continue to remain proprietary between the companies until we get through the regulatory process. But that's not something that at this stage is appropriate to discuss.
Okay, great. All that is answered. Thank you.
Thank you.
Thank you. Our next question is from John Anderson with William Blair. You may begin.
Hi. It's actually Ryan in for John. Congratulations on the deal.
Thank you. Just wanted
to follow-up on the concept of joint products and leveraging technologies. I guess I'm just trying to get an idea how far this goes. Would we actually see an innerspring Tempur mattress down the road or a VSCO Sealy product out there someday?
That's the sort of thing that we don't want to that we're not in a position to talk about right now. It's just far too early to say. But I think that the there are areas where I'm not going to I think what you're pointing to though is that there are clearly opportunities for us to leverage the combination of the brands and the technologies in creative ways to create products not only that exist today but that don't exist today that you could imagine that we as a collective could do that almost nobody else could. So, I'm not going to give answer to your specific question. Beyond saying that there's no plans like that at all, obviously.
But there's great potential for us going forward by using this combination.
I would echo that, Ryan. Look, I think both companies are, as I said earlier, very product centric, very, very rich and deep talent in our R and D organizations. So it will be up to us to create a product strategy uniquely for each independent company. And I'm sure through that creation, it will develop into ideas that will become transformational as we go forward.
Okay. So you might not want to go here with this, but so clearly there seems to be overlap here with Optimum and Tempur. Would there be an idea to rebrand Optimum at some point to kind of have a specialty offering? And will there be kind of a control over the timing of promotions and advertising between those two brands?
As I said, first, the 2 companies will plan will until the closing and then afterwards operate independently. Optimum and Tempur Pedic will continue to be in the marketplace and continue to meet the needs of consumers and they will be providing alternatives to consumers. And in the long, long run, I definitely see that both of these will still be playing an important role in our total consumer offering. Okay.
Great. Thanks, Chris.
Thank you. Our next question is from Eric Holloway with Stephens Incorporated. You may begin.
Actually, all my questions have been answered. Thank you.
Thank you. Our next question is from Joshua Pollock with Goldman Sachs. You may begin.
Hey, thanks for taking my question. Let me follow-up on a previous one. Is Tempur Pedic, the old Tempur Pedic willing to put the Tempur Pedic brand name on an innerspring mattress?
We have no plans to. And but as I said, and I said this Josh, the thing is here, I think you can see we can all see there's lots of opportunities for a variety of combinations of brands and technologies, both existing and not yet in the market, which we are uniquely positioned to capitalize on. I'm not going to specify anything any particular product or any particular path forward, but obviously there's lots of ways that we can leverage these assets.
Okay. And then on the phone technology, one of the bigger, broader one of the bigger broader concerns is that the Tempur Pedic approach to making foam in house might ultimately be more expensive than an outside foam competitor. Is there anything have you guys discussed at all, which one you guys has a cheaper foam manufacturing process, whether it's internal versus external? Is that on the table as you guys combine these two businesses?
We're very proud of our phone manufacturing processes and we find them very cost efficient and we also have a very great capability of different types of phones. But we're sensible business people, both, all of us, and we will always be evaluating ways to lower our costs. And if it's possible to do it cheaper outside, then we
would say.
No. One
of the other things, if I could just add to your question on how we think about things, sometimes and most often actually, high quality vendors, suppliers to us have and do create great value for us through their innovation and their research and development. So it's a way of extending reach, if you will, into a pool of technology. So look, I think that that's about as much as we can, should say on a call like this, but we understand the question.
Okay. And then the management teams right now obviously being compensated independently, would you expect that to continue? I guess the one concern about the combination of this business, but still running them independently is that you'll see you can still see some level of competition between the 2. Will there be one focus in terms of compensation for management as you guys dig deeper into the synergies?
Well, just to be clear, obviously, until the deal closes, we are definitely in competition. But as the deal closes and as we go through the detailed planning for how to optimize the way that the 2 companies work together, certainly how we look at pay across the 2 companies will be compared. That's one of the that will be one of the issues that will definitely be covered in the planning period.
Okay. And last question, you talked about increased R and D. I'm not sure if when you said that you meant increased synergies in R and D or if you meant an actual increase in R and D. If it is an increase, can you give us a sense of how much you guys would look to bump that up in out years?
We're not going to give specific numbers or even ratios on out years. It's what I what the point we were making is that as you know we at Tempur have been increasing our investment in R and D. It's something that we believe very strongly in. We believe that the combination of the two companies will provide us with opportunities to make investments that will have very good ROIs in product development. So it's a sort of recognition of the fact that we'll have avenues to pursue that until now we have not had.
All right. Thank you, guys. Appreciate it. Thanks, John. Thank you.
I would now like to turn the conference back over to Mark Sohrey for closing remarks.
Well, thank you, everybody. And on behalf of Larry and Jeff and Dale and I, thanks for participating on the call this morning. And thank you very much, operator.
You're welcome. Ladies and gentlemen, this concludes today's conference. Thanks for your participation, and have a wonderful day.