Samsonite, Close to Buy Tumi

Samsonite, the archi-known manufacturer of luggage products, is about to buy Tumi, one of the world's leading manufacturers of luxury luggage products.

Leeson. 04/03/2016

The transaction has been advanced by several international media, so we don´t have the confirmed price of the purchase, although it seems that may be around $2 billion, which would represent a hefty 40% premium over its current value, $1.4 billion.

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People examine Samsonite International S.A. suitcases and bags during an investor presentation in Hong Kong, China (Photo: Jerome Favre/Bloomberg via Getty Images)

The operation is very relevant for Samsonite. The American company (although its is listed on the Hong Kong Stock Exchange) is worth about $4 billion, so the purchase will be a very significant outlay (even if it is financed by own shares). Tumi was founded 40 years ago and more recently (2012) was listed on the New York Stock Exchange. The definite leap of the company into the world of luxury came in the 80s, when it began to market products made of black ballistic nylon, a high-quality material.

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Ramesh Tainwala, chief executive officer of Samsonite International SA, speaks during a Bloomberg Television interview in Hong Kong, China (Photo: Jerome Favre/Bloomberg via Getty Images)

It would be the first major purchase of its chief executive, Ramesh Tainwala, who leads Samsonite since two years ago. Interestingly, several media remembered as the executive commented in 2012 (at that time he led the Asian market and Middle East) that Tumi was a natural complement to Samsonite. It therefore appears that Tainwala has been consistent and has decided to acquire the complement to reinforce its global leadership in travel products.

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Shoppers walk past advertisements for Tumi Holdings Inc. on Orchard Road in Singapore (Photo: Nicky Loh/Bloomberg via Getty Images)

If the mentioned price of $2 billion is confirmed, it seems a very high cost for what would contribute Tumi. In fact, its current market value, $1.4 billion, is really a fair value for the firm. In 2015, Tumi sales were $550 million (up 3.9%), with a net profit of $63 million (up 8%). With these figures, current stock market valuation would be 2.55 times sales and 22 times net profit (ie, a PER of 22 times). If we think on the $2 billion mentioned by different means, it would be 3.6 times sales and a PER of 55 times, only justifiable for very high-growth companies (which is not the case of Tumi). As a comparison, Samsonite worth twice (about $4.2 billion) with sales of over $2 billion and a profit of more than $200 million

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Tumi Backpack. Click to buy

The company´s shares in Hong Kong have been suspended. Although it has not yet notified the reason, it appears that the luggage maker is about to announce the most ambitious purchase since 1993, when acquired its competitor American Tourister.

Disclosure: The Luxonomist not responsible for the views expressed in the article. The text was written freely expressing ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.

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