HOUSTON – In a merger of bedding retail giants, No. 1 bedding retailer Mattress Firmsaid it is acquiring Sleepy’s, the nation’s second-largest bedding retailer. (Editor’s Note: Gerry Borreggine, CEO of Therapedic, spoke with David Perry at this week’s Leadership Conference on the deal. See the video at the bottom of this page.)

The aggregate purchase price is $780 million, subject to working capital and other customary adjustments, officials said.

The combined company will operate nearly 3,500 stores and 80 distribution centers in 48 states. Pro forma sales in the past 12 months are more than $3.6 billion.

Mattress Firm said it has entered into an agreement to acquire all of the outstanding equity interests in HMK Mattress Holdings LLC, the holding company of Sleepy’s and related entities. Sleepy’s has more than 1,050 stores in 17 states in the Northeast, New England, the Mid-Atlantic states and Illinois. Mattress Firm has more than 2,400 company-owned and franchised stores in 41 states.

The company plans to continue to operate under both the Mattress Firm and Sleepy’s brands in the near term and will maintain an East Coast office on Long Island, New York, officials said.

“This transformational acquisition unites the nation’s two largest mattress specialty retailers, providing customers with convenience, value and choice through our truly border-to-border and coast-to-coast, multi-brand retail stores and distribution network,” said Steve Stagner, Mattress Firm‘s CEO. “Over the years we have admired Sleepy’s for the strong business they have built. The Acker family has a long history in the mattress specialty retail industry through four generations and over 58 years. I look forward to partnering with David Acker during this transition period, as we bring together these two great companies that share a strong focus on culture, the customer and overall service experience.”

The closing of the acquisition, which is subject to expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and other regulatory approvals, is expected to occur during the first half of Mattress Firm‘s fiscal year 2016, officials said.

Mattress Firm has agreed to assume certain liabilities totaling approximately $30 million. In addition, Adam Blank, the current chief operating officer and general counsel of Sleepy’s, will join the Mattress Firm executive management team and will contribute up to $10 million of the equity value he holds in Sleepy’s in exchange for shares of Mattress Firm common stock. The remainder of the consideration payable to the equity holders of Sleepy’s will consist of cash, officials said.

Upon closing, Blank will become president of Sleepy’s. That post is currently held by David Acker, whose father, Harry Acker, founded the retailer.

In a Monday evening conference call with securities analysts, Stagner said there is “unquestionably compelling strategic rationale” for the acquisition, which will allowMattress Firm to leverage costs such as advertising, product sourcing and procurement on a national basis, and continue its long term drive to operate 4,500 stores nationally.

“We have long admired Sleepy’s and the strong business they have built,” Stagner said. “We have felt for years that this combination needed to happen.”

Stagner said Sleepy’s would be operated essentially “as is” during 2016. He said he doesn’t anticipate a significant number of store closings because the two retailers compete head-to-head in only a few markets — Chicago being the most noteworthy.

“We typically don’t try to close a lot of stores (following an acquisition). We tend to ride out the leases,” he said. “We might have some overlap for a few years, at most.”

He said the acquisition should result in some $40 million in cost savings by the third year after the closing. In addition, the company expects to get income tax benefits of about $11 million annually for at least a decade from the goodwill generated from the transaction and the carryover tax basis of other assets.

Stagner told analysts the company had discussed an acquisition with Sleepy’s officials “several times over the years,” but talks began in earnest in late September. At the time, other parties who he wouldn’t identify also had expressed interest in buying Sleepy’s.

“We think we’re buying a business on the upswing,” added Alex Weiss, chief financial officer. “Sleepy’s has stronger (market) penetration that most acquisitions we’ve done.”

Mattress Firm also announced preliminary financial results for its fiscal third quarter ending Nov. 3. Net sales for the third fiscal quarter increased 50.7% to $699.5 million, reflecting comparable-store sales growth of 3.8% and the addition of new and acquired stores.

The company said it expects earnings per diluted share of 65 cents to 67 cents.

“This represents our ninth consecutive quarter of positive same store sales growth,” said Stagner. Our entire organization is executing well and benefiting from the streamlined organizational structure and management initiatives we have in place. We remain focused on executing on our growth plan and creating value for our shareholders through our relative market share strategy.”

Complete financial results for the quarter are scheduled to be released on Dec. 7.