Court Relies Heavily on Testimony of Compass Lexecon Expert Dr. Mark A. Israel in Denying FTC’s Attempt to Block Tempur Sealy’s Acquisition of Mattress Firm

On January 31, 2025, Judge Charles Eskridge of the U.S. District Court for the Southern District of Texas denied the FTC’s request for a preliminary injunction in Tempur Sealy International, Inc.’s (Tempur Sealy) acquisition of Mattress Firm Group Inc. (Mattress Firm). In his opinion, Judge Eskridge agreed with and relied heavily on Compass Lexecon expert Dr. Mark A. Israel’s analyses and conclusions, including his findings that the FTC and its economic expert failed to define a valid product market and failed to establish that the proposed vertical merger would lead to a substantial lessening of competition or consumer harm. The parties have subsequently closed the transaction.

Tempur Sealy announced that it had agreed to purchase Mattress Firm for $4 billion on May 9, 2023. Compass Lexecon and Dr. Israel were involved from the start of the process. On July 2, 2024, the U.S. Federal Trade Commission sued to block the merger and sought a preliminary injunction in Federal Court in the Southern District of Texas. The FTC alleged that the transaction would lead to full or partial foreclosure of Tempur Sealy rivals from Mattress Firm retail locations, which it claimed would harm competitors and competition. The preliminary injunction (PI) hearing took place from November 12 through November 25, 2024, with Dr. Israel as the parties’ sole economic expert, providing expert testimony regarding market definition and competitive effects.

At the PI hearing, Dr. Israel testified that the FTC’s economics expert failed to define a valid product market and failed to establish that the proposed merger would lead to a substantial lessening of competition or harm to consumers. Dr. Israel then presented rigorous economic modeling, which demonstrated large consumer benefits from the transaction. He also testified that historical evidence—which included the impact on consumers from Tempur Sealy’s prior retail acquisitions, as well as the impact on Tempur Sealy during a period in which it was removed from the Mattress Firm floor—confirmed his conclusions that the merger would benefit competition and consumers.

In his opinion denying the FTC’s request for a preliminary injunction, Judge Eskridge rejected essentially all of the FTC’s arguments and agreed with essentially all of Dr. Israel’s opinions. Judge Eskridge cited and relied heavily on Dr. Israel’s analyses in his discussion, going so far as to cut and paste many of Dr. Israel’s demonstratives into his opinion. Specifically, in rejecting the FTC’s relevant product market definition, Judge Eskridge cited Dr. Israel’s conclusions that the price threshold used by the FTC was not supported by the evidence and that the FTC’s expert failed to conduct a proper Hypothetical Monopolist Test. In his findings on competitive effects, Judge Eskridge cited Dr. Israel’s conclusions regarding: (1) the elimination of double marginalization and how that would manifest in this industry; (2) the failure of the FTC’s model to account for the importance of retailers; (3) the failure of the FTC’s model to account properly for how wholesale and retail prices are set in this industry; (4) the implication of historical evidence derived from Tempur Sealy’s temporary removal from Mattress Firm; and (5) the fact that, despite its flaws, the FTC’s economic model demonstrated that the merged firms would have no incentive to foreclose competition and that competitors would not be harmed by the transaction. Finally, Judge Eskridge cited many analyses conducted by Dr. Israel, showing that even if potential rivals were foreclosed from Mattress Firm, there exist sufficient alternative options through which to sell mattresses to eliminate any possibility of harm.

In describing the role played by Dr. Israel and Compass Lexecon, Daniel Culley of Cleary Gottlieb Steen & Hamilton LLP said, “Mark’s clear explanation of the issues in the FTC’s market definition, of complex economic concepts, and of the modeling errors of the FTC’s expert, and the work of his team to prepare him for that testimony, played an important role in our victory.”

Dr. Israel was supported by a large Compass Lexecon team led by Erica Benton that included Narsid Golic, Yair Eilat, Paolo Ramezzana, Daniel Stone, Junyan Guan, Mary Li, Alice O’Donnell, Rodrigo Montes, Michael Foley, Benjamin Rosenbaum, Salvatore Piccolo, Georgi Giozov, Benjamin Xiao, Kensuke Maeba, Carolyn Kryczka, and Donovan Kaddis. Dr. Loren Smith was also retained by Mattress Firm Group Inc. to advise on the matter.

Compass Lexecon worked closely with D. Bruce Hoffman, Blair W. Matthews, Daniel P. Culley, Ryan A. Shores, Matthew I. Bachrack, Gabriel J. Lazarus, Brittany Day, and Noopur Sen of Cleary Gottlieb Steen & Hamilton LLP, and with Sara Y. Razi, N. Preston Miller, Lindsey C. Bohl, and Nicholas Ingros of Simpson Thacher & Bartlett LLP.