Tempur Sealy International Inc. has a plan in place that it hopes will win over a Federal Trade Commission (FTC) challenge of its $4 billion deal to acquire Mattress Firm.

The mattress company said it signed a purchase agreement with MW SO Holdings Co. LLC (Mattress Warehouse) to acquire 73 Mattress Firm retail stores and Tempur Sealy’s Sleep Outfitters subsidiary. The subsidiary includes 103 specialty mattress retail locations and seven distribution centers.

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“As part of our engagement with the FTC on the proposed acquisition of Mattress Firm, we conducted a divestiture process, which led to an agreement with Mattress Warehouse, a company with extensive mattress retail experience, a strong capital base, and a capable leadership team,” Tempur Sealy’s chairman and CEO Scott Thompson said.

After the transaction closes, Tempur Sealy will operate over 2,800 retail stores worldwide, with about half of its North American sales expected to come from the Mattress Firm operations. Tempur Sealy said it expects to realize annual run-rate synergies of $100 million by the end of year four after closing on the deal. It will also continue to supply its mattress brands Tempur-Pedic, Stearns & Foster and Sealy to the about-to-be divested Mattress Firm and Sleep Outfitters stores.

Bedding retailer Mattress Firm Group Inc. filed for for an initial public offering in January 2022, with plans to raise $100 million. It had been taken private in 2016 by Steinhoff International for $3.8 billion, but filed for bankruptcy in 2018 only to emerge a month later after closing nearly 700 stores. Steinhoff in October 2022 said it was exploring strategic options for the Mattress Firm business. Mattress Firm in January 2023 scrapped its IPO plans.

Meanwhile, its parent Steinhoff was working with creditors in early May 2023 on a debt restructuring plan to avoid a bankruptcy filing. Shortly thereafter, Steinhoff entered into an agreement to sell Mattress Firm Group to Tempur Sealy.

Tempur Sealy at the time said the deal was subject to customary closing conditions and expected it to close in the second half of 2024. But the FTC had other ideas, choosing to block the sale. The FTC rationale was that Tempur Sealy’s manufacturing and supply chain operations, coupled with Mattress Firm’s store network, would create “enormous power” at the merged entity. The FTC also said the combination would allow the new company to suppress competition and raise prices for mattresses that would impact millions of customers.

The parties are slated to be in court on the FTC challenge in November. The transaction with Mattress Warehouse is expected to pave the way for FTC support of the Mattress Firm acquisition and was structured as part of a number of conversations with the FTC.

The FTC has become more active in transactions it believes could suppress competition. The FTC is also trying to block Tapestry Inc.’s $8.5 billion deal to acquire Capri Holdings. The two are huge players in the accessible handbag market. Tapestry owns the bag brands Coach and Kate Spade, while Capri’s big handbag brand is Michael Kors. The two inked a deal in August 2023, but was met with the FTC challenge in April 2024.

“If allowed, the deal would eliminate direct head-to-head competition between Tapestry’s and Capri’s brands,” the FTC said in a statement. It also noted that the deal would give Tapestry a dominant share in the “accessible luxury” handbag market, which was described by Tapestry years ago as quality handbags at affordable prices.

The parties were in federal court earlier this month for a preliminary injunction to halt the deal. One of Tapestry’s arguments is that the FTC fails to understand how consumers shop the category. The parties will be back in court on Monday for closing arguments. A ruling on the preliminary injunction could come any time after that.