Sleep Number shareholder issues wake-up call to company's board of directors

One of Sleep Number's largest shareholders has sent a letter to the board of directors seeking a seat on the board in order to address underperformance.

"We believe Sleep Number is a tremendous brand with a compelling, differentiated product set and an attractive business model," wrote Stadium Capital in its letter to the Sleep Number board. "Unfortunately, these positive attributes have been obscured by poor execution and ineffective corporate governance from our view."

The activist shareholder owns about 9% of the shares of the Minneapolis-based maker and seller of Sleep Number smart beds. The Connecticut-based investment firm has been adding to its position in Sleep Number over the past two years and Sleep Number is now one of the largest holdings in its portfolio.

In a response, Sleep Number said its board and management is "committed to acting in the best interests of the company and all of its shareholders. They maintain regular communication with the company's shareholders and welcome all constructive input that furthers the goal of enhancing shareholder value."

Stadium Capital is one of Sleep Number's five largest shareholders, and it is clear from its letter that representatives had discussions with the Sleep Number board prior to making their letter public on Wednesday.

Sleep Number confirms that and said its lead independent director met with the activists separately from management.

"The board has moved expeditiously to 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 statement said.

The two sides appear far apart on a new board makeup. Stadium Capital was looking for more than just help in selecting a new director. It was asking the company for a seat on the board and the addition of two independent directors.

In its letter, Stadium Capital highlighted how Sleep Number underperformed major stock market indexes and competitor Tempur Sealy International over one-, three-, five- and 10-year periods.

Stadium Capital also took issue with Sleep Number's overall corporate strategy to position itself as a wellness company, its share buyback program, and what it called poor execution and financial planning. Also, it criticized Shelly Ibach's role as CEO and board chair.

Ibach has been CEO of Sleep Number since 2012 and added the chair role in May 2022. She is one of the few women to lead a Minnesota-based public company.

Four of Sleep Number's board members have 10 or more years service on the board but the board also includes three board members that have joined in the past four years.