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Sleep Country, founded by Stephen Gunn, Christine Magee and Gord Lownds in Vancouver in 1994, has 215 stores across eight Canadian provinces, including 47 outlets in Quebec under the Dormez-vous? brand.Deborah Baic/The Globe and Mail

Sleep Country Canada Holdings Inc.'s secondary stock offering has run into trouble, according to sources close to the underwriters.

The $185-million deal, which was announced Monday after the close, had to be repriced to $17.75 a share from $18.50 – a discount of 4 per cent.

TD Securities Inc. and BMO Nesbitt Burns Inc. led the transaction that saw private-equity company Birch Hill Equity Partners Management Inc. offload some of its holdings.

Since it was structured as a bought deal, Birch Hill bore no risk. The repricing and reduction in profit will be eaten by the underwriters who bought the stock from Birch Hill. Underwriters will earn a commission of 4 per cent on the deal, so if they can get the stock off their books they will essentially have worked for free. As of early Tuesday afternoon, the stock was trading at roughly $17.78.

Underwriters proceeded with the bought deal on a day when the stock had come under considerable pressure. On Monday, the shares traded down to $19.05 – a selloff of 4.5 per cent on a day when the broader market was up.

The deal was then priced at $18.50 – a discount of less than 3 per cent – leaving a little wiggle room for underwriters to move the shares. Demand for the stock was said to be weak overnight, and on the opening, it slumped to $17.68.

Most bought deals go off without a hitch in Canada, but every once in a while one lands with a thud. In June, underwriters had to cut the price on Tahoe Resources Inc.'s $1-billion share sale.

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