Somnigroup has closed its takeover of Leggett & Platt, and about two thirds of the $2.3bn the deal is valued at is debt that does not move

Leggett & Platt is no longer a public company.

At an effective time on Wednesday, Sparrow Unity Corporation, a Missouri company owned by Somnigroup International, merged into Leggett & Platt, and the diversified manufacturer of engineered components that Somnigroup calls a critical part of its own supply chain survived as a wholly owned subsidiary of the largest bedding company in the world. Each Leggett & Platt share became the right to receive 0.1455 Somnigroup shares, with cash for fractions. Both companies filed the same account of it within an hour of each other, Somnigroup at 12.41 and Leggett & Platt at 13.27.

Somnigroup puts the value at approximately $2.3 billion, measured against its own closing share price on Tuesday and inclusive of the debt it inherited. Read the second half of that sentence before the first.

The debt did not move

Item 2.03 of the Somnigroup filing records that $1.5 billion of Leggett & Platt notes remain outstanding: the 3.50 percent notes due 2027, the 4.40 percent notes due 2029 and the 3.50 percent notes due 2051. Each series stays payable on its original terms under its own indenture. Nothing was refinanced, tendered, or moved onto new paper.

So about two thirds of the stated $2.3 billion is borrowing that sat on the balance sheet on Tuesday and sits there still, and the residual, on the order of $800m, is what the stock issued represents. That is arithmetic done here from two figures the documents give, the larger of them approximate and moving with Somnigroup's share price, so the residual is a residual and not a price. The measure that needs no arithmetic is the one Somnigroup states outright. Former Leggett & Platt shareholders own approximately 9 percent of the combined company on a fully diluted basis.

One number in the Leggett & Platt filing is worth reading twice. The company terminated its Fifth Amended and Restated Credit Agreement with JPMorgan Chase and repaid what the filing calls "approximately $277,000 in aggregate" of outstanding obligations under it. It terminated its commercial paper programme the same day with no commercial paper outstanding at all.

What leaves the exchange, and who stays

Leggett & Platt notified the New York Stock Exchange that the merger had closed, asked for trading in LEG to be suspended and the listing withdrawn, requested that the exchange file a Form 25, and said it intends to file a Form 15 to end its reporting obligations. Eight directors ceased at closing, among them Karl G. Glassman, who had been chairman and chief executive.

Glassman does not leave. Exhibit 99.2 appoints Tyson Hagale as President of Leggett & Platt, effective immediately, reporting to Glassman as chief executive of the subsidiary, based in the same Carthage, Missouri office the company has always run from. Hagale has been there 25 years and spent the last five running Bedding Products, the segment that carried what Glassman describes as "a major restructuring to improve profitability in the face of industry headwinds."

The buyer's reason is vertical integration, and it says so plainly. Somnigroup already owns Tempur Sealy, Mattress Firm and Dreams, and chairman and chief executive Scott Thompson said the addition "deepens our vertical integration, secures a critical part of our supply chain," after what he called nearly 50 years of collaboration between the two companies. The combined group runs more than 170 manufacturing plants in 37 countries with over 36,000 employees. Glassman, for his part, said Leggett & Platt had earned its reputation over "more than 140 years" of engineering.

The numbers to hold Somnigroup to

Somnigroup raised its annual run-rate synergy target to $75 million, up from the $50 million it estimated when the deal was announced in April. It puts net leverage at approximately 2.8 times adjusted EBITDA at close, says the transaction cut leverage by about 0.2 times, and expects to move toward the midpoint of a 2.0 to 3.0 times target range by year end.

Two costs arrive with the purchase accounting and neither is cash. Somnigroup expects roughly $50 million a year of non-cash expense from marking the acquired business to fair value, mostly landing in cost of goods sold, and roughly $10 million a year from marking the acquired bonds, landing in interest expense. It anticipates both will be treated as adjustments under its credit facility.

Goldman Sachs advised Somnigroup, with Cleary Gottlieb Steen & Hamilton as counsel. J.P. Morgan Securities advised Leggett & Platt, with Latham & Watkins. The acquired-company financial statements and the pro forma numbers are not in this filing and are due by amendment within 71 days. Somnigroup will take questions on 2 September at 8.00 a.m. Eastern.