1. Photographer: Nicky Loh/Bloomberg

    deals

    Brooke Sutherland

    Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

    It looks like Samsonite is finally making that trip -- to New Jersey. 

    The Hong Kong-listed luggage maker is nearing a deal to buy South Plainfield, New Jersey-based Tumi, the Wall Street Journal reported late Wednesday. The price couldn't yet be determined, but Tumi shares were about 30 percent higher as of midday Thursday, giving the company a market value of almost $1.8 billion. 

    It's an acquisition Samsonite CEO Ramesh Tainwala signaled an interest in as far back as 2012. Then head of the company's Asia and Middle East operations, he called Tumi a "natural fit," but Tim Parker, the CEO at the time, ruled out a takeover because it was too expensive. Now, Tainwala is calling the shots and Tumi looks less pricey.

    Traveling Toward a Deal
    The gap between Tumi and Samsonite's valuations has been shrinking.
     
    Source: Bloomberg

    Revenue at Tumi, a maker of high-end luggage, increased last year at the slowest rate since 2009 as currency fluctuations and weaker traffic from Chinese tourists weighed on results. The setbacks sparked a decline in Tumi shares that whittled its valuation advantage over Samsonite to about half what it was back in 2012 (based on a multiple of price to sales). That's made a potential transaction all the more accretive for Samsonite. Indeed, an all-cash deal at a 30 percent premium to Tumi's closing price on Wednesday would add to earnings even before taking into account the likely significant cost savings, according to data compiled by Bloomberg. 

    And despite Tumi's decline, things are hardly all doom and gloom at the luxury luggage maker. The tumble in the company's valuation in the past few years belies the fact that its business has arguably gotten better. Yes, sales at stores open more than a year took a hard hit in 2015, but revenue was saved in part by Tumi's aggressive expansion, particularly internationally. The company opened 27 new stores last year and has increased its location count by about 50 percent since the end of 2012. Normally, this dynamic would be troubling. At a time when most retailers are cutting their store counts and scrapping dreams of a global takeover, it's certainly more of a contrarian approach.

    Slow, But Still Growing
    Tumi's roaring revenue growth decelerated last year, but the pace of expansion should start to pick back up in the coming years.
     
    Source: Bloomberg

    But Jefferies analyst Randal Konik estimates Tumi could eventually support 500 stores globally. His confidence comes from the company's ability to manage costs. Gross margins have increased steadily over the past few years and beat analysts' expectations in the fourth quarter. Part of the improvement is tied to Tumi's decision to cut promotional activity -- a move that may continue to crimp sales this coming year, but in the long term should help protect the premium nature of the brand. 

    That luxury image may be what Samsonite is after. Try as it might, it hasn’t been able to command the same type of high-end reputation as Tumi.

    Premium goods makers like Tumi tend to weather economic downturns better than brands that cater more to the middle class with "affordable luxury" items. There's a question as to whether that would still hold true as currency swings make it pricier for the Chinese customer base that makes up 30 percent of global luxury spending. But as Gadfly's Andrea Felsted has argued, there are still plenty of wealthy consumers and what the Chinese don't spend in Europe and the U.S., they may make up for at home or in neighboring Japan where the currency dynamics are more favorable.  It's probably not a coincidence that Japan is one of Tumi's stronger Asian markets and a place where it's been expanding: Tumi agreed in November to buy out its partners in a Japan joint venture.

    All of this makes Tumi a highly attractive target for Samsonite, but it also makes the company an attractive target for other bidders. VF Corp. has been coming up empty in its hunt for deals and may jump at the opportunity to add a higher-end brand with opportunities for global growth. Other luxury European retailers could also be interested.

    It could be a crowded flight to New Jersey. 

    This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Brooke Sutherland in New York at bsutherland7@bloomberg.net

    To contact the editor responsible for this story:
    Beth Williams at bewilliams@bloomberg.net