Stadium Capital sends letter to Sleep Number shareholders

Stadium Capital sent the below letter to shareholders of Sleep Number (SNBR): “Stadium Capital Management, LLC (together with certain of its affiliates, “Stadium Capital” or “we”) is the largest shareholder of Sleep Number Corporation (“Sleep Number” or the “Company”), owning approximately 11.7% of the Company’s outstanding shares. We hold our position because we remain convinced that there is enormous upside in the value of the Company if certain fundamental changes occur. Our successful and nearly three-decade investment strategy is typically based on close, friendly collaboration with our concentrated portfolio of companies, anchored in deep research and a long-term investment horizon. We strongly prefer to keep engagement private and are nothing if not patient, but after a decade of diligent work on Sleep Number and over 15 meetings with the Company’s management and Board of Directors (the “Board”), our frustration with current leadership, who has overseen massive shareholder value destruction, reached a tipping point last year. As a result, we were compelled to take the rare step of publicly expressing our concerns regarding Sleep Number’s leadership and governance last year.1 This ultimately led to the appointment of two highly qualified new directors to the Board pursuant to a Cooperation Agreement between Stadium Capital and the Company (the “Cooperation Agreement”). On October 30, 2024, a mere four days before our one-year Cooperation Agreement expired, the Board announced several management and governance changes, including the retirement of the CEO, President and Chair of the Board, Shelly Ibach, and a gradual de-classification and shrinking of the Board. While on the surface these changes represent forward progress, it is clear to us that they are the bare minimum, insufficient and wholly inadequate given the gravity and urgency of the situation Sleep Number finds itself in today – thanks to this Board. In our view, these changes reflect the current Board’s efforts to cling to the status quo and maintain control… It is nonsensical for shareholders and offensive to Sleep Number’s employees for the Board to continue wasting shareholder money to pay advisors to “defend” the Board against an outcome that owners prefer during this critical period of cost-cutting. To reiterate, if our fellow shareholders agree with our views, we encourage you to express that to the Board in short order. If the Board listens to its business owners’ views, we see a quick path to creating an excellent Board that will be capable of hiring an outstanding CEO for Sleep Number and all its stakeholders. Should our requests and concerns continue to fall on deaf ears, we will be compelled to nominate several exceptionally qualified directors for election at Sleep Number’s 2025 Annual Meeting of Shareholders. We believe that a large portion of the Company’s shareholders would support our efforts. While a protracted public battle may potentially delay the CEO transition, we are confident that the eventual result of our successful campaign would be a high integrity search process, the hiring of the best possible CEO and an improved Board. With these elements in place at Sleep Number, we believe shareholders will be positioned to realize enormous upside over the next several years, and all stakeholders will benefit from a healthier culture based on accountability. We know what is possible at Sleep Number, which is why we are committed to taking the necessary actions for the Company to make good on its immense potential.”