TORONTO (Reuters) - Private equity firms Birch Hill Equity Partners Management Inc and Westerkirk Capital Inc launched a C$299 million ($282 million) bid on Thursday for Sleep Country Canada Income Fund to take control of the country's largest mattress retailer.
The friendly deal sent units of Sleep Country -- the chain well known for its ubiquitous radio and television ads -- up as much as 36 percent on the Toronto Stock Exchange. They had lost about a third of their value since the start of the year.
Birch Hill and Westerkirk said they will offer C$22 in cash for each Sleep Country unit, a 37.1 percent premium over Wednesday's closing price.
With the assumption of Sleep Country's debt, the deal is worth C$356 million. Sleep Country's board has recommended unitholders accept the offer.
Sandy McIntyre, chief investment officer of Sentry Select Capital Corp, Sleep Country's largest unitholder with about 12 percent according to Reuters data, said the price was fair given current soft retail market conditions.
"Is it full valuation? No, the stock will be worth more five years from now than it is today. It's a nice growth company," McIntyre said in an interview.
Sleep Country trust units jumped C$5.83 to close at C$21.88 on the TSX on volume of nearly 6 million units.
The fund, which operates under the Sleep Country Canada banner, and as Dormez-vous Sleep Centres Inc in Quebec and Sleep America LLC in Arizona, said it expects to keep paying regular monthly distributions of 12.1 Canadian cents a unit until the deal closes.
Sleep Country's chief executive, Stephen Gunn, will stay with the company, as will Christine Magee, its president, founder and pitchwoman, the companies said.
"They know the assets and they know the business really well and it's opportunistic timing," McIntyre said. He pointed out that Gunn holds a spot on Westerkirk's advisory board.
"This business is a free cash flow business, you've got limited fixed assets, very decent margins and one of the best marketing teams ever seen in any business," McIntyre said.
Under the deal, Birch Hill and Westerkirk will be paid a C$7.75 million break fee if a higher bid wins out.
Sleep Country was one of two Canadian income trusts announcing buyouts Thursday. Clearwater Seafoods Income Fund agreed to be taken private by a consortium led by Clearwater Fine Foods Inc.
The two are the latest income funds to be swept up by private buyers as Ottawa prepares to remove the investment vehicles' tax advantages in 2011.
The deal, which is conditional on two-thirds of units being tendered, is expected to close by September 23.
Additional reporting by Jennifer Kwan; Editing by Jeffrey Jones