By the slimmest of margins, Select Comfort shareholders on Thursday rejected a proposal to grant a private equity firm a controlling interest in the bed manufacturer.

The leadership of the Plymouth-based company, which was looking for an infusion of cash, struck a deal with Sterling Partners three months ago to allow the equity company to buy a 52.3 percent majority interest for $35 million, or 70 cents a share. But the stock has been trading closer to $3 a share in recent days, closing at $2.77 the day before the shareholders' meeting.

After two meeting recesses to tally the votes, General Counsel Mark Kimball announced shortly after noon that 49.94 percent of the shares present and eligible to vote had cast ballots in favor of the Sterling proposal -- not enough to seal the deal.

As news of the shareholder vote spread, the company's stock rose. In regular trading, Select Comfort closed Thursday at $2.83, up 6 cents or 2.17 percent. But the stock shot up rapidly in after-hours trading, reaching $3.25 a share, or a boost of 14.84 percent.

The results were clearly a disappointment for Sterling Partners and quite a departure from a typical highly scripted corporate shareholders' meeting. Patrick Hopf, who had been picked by Sterling to become the new Select Comfort CEO, tried to head off the voting results announcement immediately after Kimball told the assembled shareholders that "the polls are now closed."

The would-be CEO stood up at the back of the meeting room in The Northland Inn in Brooklyn Park, said he owned 73,750 shares and made a motion to adjourn the meeting until Sept. 15.

Kimball ruled him out of order because he said that any shareholder proposals needed to be provided to fellow shareholders in advance of the meeting.

Kimball then provided the voting results. Defeat of the Sterling proposal means that Bill McLaughlin remains chief executive officer. He was unavailable for an interview after the meeting, so it's unclear how he and the board of directors plan to address the company's financial condition and strategic direction in light of the Sterling proposal's defeat.

David Schall, an executive search consultant from Edina, was the only Select Comfort shareholder who asked questions during the meeting. He recruited McLaughlin for the CEO post in 2000 and he also knows Hopf, who served on the Select Comfort board from late 1991 to the middle of 2006. Schall declined to say which way he voted on the Sterling deal.

However, he said that he thought the Sterling proposal was defeated "because there was a perception that the price they were paying was not high enough."

When Select Comfort's board and management unveiled the Sterling proposal in May, they emphasized that it was linked with their ability to get more favorable terms with their lenders -- including extending the maturity of some financing from mid-2010 to the end of 2012.

Now, Schall said, "Existing management needs to restructure their debt covenants with the banks" as well as continue with the strategy of "looking for ways to make money and save money."

Sterling's leaders also were not available for interviews Thursday, but Schall speculated that "there's a chance that Sterling will come back with a sweetened offer."

Sterling co-founders Chris Hoehn-Saric and Eric Becker attended the meeting and answered some of the questions raised by Schall.

When queried about how long Sterling would hold on to its Select Comfort investment, Becker said, "We have no intention of selling our shares any time in the foreseeable future."

Hoehn-Saric said he was a "true believer" in the product and has owned four Sleep Number beds made by Select Comfort.

Robert Carson, a shareholder from Columbia Heights, said he appreciated the Sterling leaders' comments. "They weren't a bunch of stuffed shirts," said Carson, who is retired from working at a medical device company. Carson said that he "reluctantly" voted in favor of the Sterling proposal, but he was concerned about the dilution effect on his shares since Sterling would be buying shares well below the market value.

"Quite frankly, I am happy that it failed," said Jeffrey Parker, who leads an investment advisory firm in Greenville, S.C. He manages 60,000 Select Comfort shares for about 25 investors.

"We were concerned about the dilution," Parker said. He added that shareholders were more inclined to vote against the deal after Galt Investment Partners, a major shareholder with about 2 million shares, came out against the deal in a public statement last Friday.

Galt's managing member Jeff Lick wrote: "This does not seem to us to be a sick, desperate or dying company with a need to close any capital raising transaction, regardless of the terms."

Liz Fedor • 612-673-7709