ACQUISITION

Samsonite buys New Jersey-based travel baggage maker Tumi for U$1.8b

Acquisition is the largest by value for Samsonite since its Hong Kong IPO in 2011

PUBLISHED : Friday, 04 March, 2016, 9:49am
UPDATED : Friday, 04 March, 2016, 6:21pm

Samsonite International SA said on Friday it will purchase New Jersey-based manufacturer of travel baggage Tumi Holdings for US$1.8 billion (HK$ 13.99 billion), reflecting its biggest acquisition since listing on the Hong Kong Stock Exchange five years ago.

Samsonite, the world’s largest branded-luggage maker, said it will pay US$26.75 per share, or about 33 per cent above Wednesday’s closing price for Tumi’s New York-listed shares. The deal is expected to be completed in the second half of this year.

“I think the acquisition price is quite high, but you saw that the markets reacted quite positively to the news. It’s probably because of Samsonite’s own track record - the investors trust them,” said Ivan Li, equities analyst at Tung Shing Securities. “Their industry will be less affected by the macroeconomic cycle. Maybe Samsonite thinks their organic growth is slowing down and so they want to make a better use of their capital by acquiring their competitor.”

Kyle Gendreau, executive director and chief financial officer at Samsonite, told the South China Morning Post that although China is grappling with an economic downturn, the region only represents a percentage of the company’s business. She added that Samsonite’s sales are doing “very well” in Asia and particularly in Hong Kong.

“We’re looking at a temporary blip, versus if you’re really looking at this business on a five, six, or seven year basis this [deal] will fit very nicely,” Gendreau said. “We tend not to focus on what I would label short-term cycles.”

The company has a history of using acquisition as a means of expansion. Since 2012, Samsonite has announced nine acquisitions - expanding into distribution and diversifying its business by merging with other travel and non travel brands.

The company has plans to double annual sales to US$4.7 billion in the six years ending 2020, Bloomberg reported.

Gendreau said that the company’s growth has been in the double digits. The acquisition will be financed via external lines of credit and the company has no plans to raise funds through the issuance of new shares.

We’ll expand our business category,” Gendreau said. “If you look at our numbers, we generate a good amount of cash. We’re highly confident of the debt level we’re taking on and how quickly it will be leveraged.”

Ramesh Tainwala, chief executive officer of Samsonite, said at a Friday press conference that the acquisition will help Tumi expand its reach into Asia as well as Europe. He added that the deal would enhance Samsonite’s product development in design and innovation.

Tainwala said Samsonite has been eyeing Tumi as a possible acquisition target for 15 years.

“The partial reason for why now is that the debt market is more favourable. It allows you to acquire the business at a much more profitable manner,” Tainwala said.

He added Samsonite has no acquisition plans for the next year, although he wouldn’t rule out the possibility if the right opportunity arose.

Samsonite’s Hong Kong-listed shares traded as high as HK$25.2 before settling back to close at HK$24 on Friday, up 1.27 per cent from its level Thursday afternoon when it was suspended pending an announcement.