KKR & Co., the private equity firm that owns 45 percent ofSealy Corp., is being targeted by the mattress maker'ssecond-largest shareholder for “significant corporate governancedeficiencies” that it says have stifled Sealy's performance.

H Partners Management LLC, which owns 14 percent of Sealy, saidin a letter to the company's corporate governance committee thatKKR has “overloaded” the firm with debt and made strategic errorsthat reduced Sealy's earnings by half. The New York-based investoralso singled out Dean Nelson, head of KKR's consulting unit and aSealy director since 2004, for “excessive” influence on theboard.

“Since Sealy's IPO in April 2006, shareholders have suffered a$1.3 billion, or an approximate 90 percent, loss of common equityvalue,” Usman Nabi and Arik Ruchim of H Partners wrote in theletter dated March 11 and filed with regulators today. “In ourview, this value destruction is due to the poor judgment,interference, and conflicts of interest of one shareholder:Kohlberg Kravis Roberts.”

Kristi Huller, a spokeswoman for KKR, declined to comment on theletter.

The private equity firm, run by Henry Kravis and George Roberts,bought Trinity, North Carolina-based Sealy in 2004 for $1.5 billionfrom an investment group that included Bain Capital LLC. KKR paid$5.78 a share for the bedding maker and took it public two yearslater for $16 a share.

The shares have since lost 89 percent of their value. Sealy rose2.9 percent to $1.81 at 10:47 a.m. in New York trading and hasgained 5.8 percent this year.

Sealy has been bought and sold by buyout firms since 1989, whenits inability to refinance a short-term loan earned it the moniker“burning bed.” Last year the company posted a loss of $9.9 million,following a loss of $13.7 million the year before.

In 2009, it earned $13.5 million in profit. In the middle ofthat year, KKR extended $177 million in new capital to Sealy — amove Moody's Corp. said “reflected KKR's interest in keeping Sealyfinancially sound.”

In their letter, Nabi and Ruchim attribute the saggingperformance in part to a lack of broader representation on Sealy'sboard of directors. The partners propose appointing arepresentative from H Partners to the board and replacing threedirectors with KKR affiliations with new members.

Nabi and Ruchim specifically call for Nelson's resignation,claiming some of the $20.9 million Sealy has paid KKR in consultingfees since 2006 was unnecessary. Nelson heads KKR Capstone, theprivate equity firm's operations and consulting business.

“Through our partnership, we've achieved better results morequickly than we could have on our own,” Lawrence J. Rogers, Sealy'schief executive officer, wrote in a block quote on KKR Capstone'swebsite.

Rogers is set to retire this year after four years as CEO and 33years at Sealy. Nabi and Ruchim proposed in their letter that an HPartners representative be added to the CEO search committee.

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.