Samsonite Says Tumi Makes Sense as Target in $1 Billion M&A Hunt

Samsonite International SA (1910), the world’s largest branded-luggage maker, said an acquisition of bagmaker Tumi Holdings Inc. is a “natural fit” as it readies to spend at least $1 billion on buying rivals.

“One way we’d like to accelerate our growth is via the route of acquisitions,” said Ramesh Tainwala, Samsonite’s president for Asia Pacific and Middle East. Buying smaller rival Tumi would “make sense,” he said.

Samsonite (1910) intends to use its cash flow to acquire a brand this year that complements its products, said Tainwala, in a Jan. 18 interview. The maker of backpacks, luggage and travel gear has dropped 14 percent in Hong Kong trading since listing on the market last year as unemployment curbs consumer spending in developed markets and economies in Asia slow.

“Samsonite is already the biggest luggage maker and it’s doing much better than rivals,” said Katherine Chan, an analyst at Royal Bank of Scotland who recommends buying its stock. “Its business is very cyclical and it’s clouded by the grim macro- economic picture right now.”

Buying Tumi, the designer of black-nylon luxury travel bags that’s seeking as much as $300 million in an initial public offering in the U.S., may help Samsonite (1910) build on its strengths in the market, Tainwala said.

Natural Fit

The company isn’t interested in deals that involve “becoming just a shareholder,” said Tainwala, “Tumi is a natural fit to us, but it’s always subject to valuations.” He declined to say whether the two parties are in any type of talks.

Nick Bastin, a spokesman for Doughty Hanson & Co., declined to comment on a possible takeover by Samsonite when reached by phone yesterday. The London-based private-equity firm took over Tumi in 2004.

Samsonite raised about HK$9.73 billion ($1.25 billion) in its June IPO in Hong Kong and has cash and equivalents of $101.8 million as of June 30, according to data compiled by Bloomberg.

The luggage-maker’s stock fell 0.5 percent to HK$12.50 yesterday. Samsonite’s 14 percent decline from its IPO price of HK$14.50 a share compares with an 11 percent drop for the benchmark Hang Seng Index since June 15, the day before the stock started trading.

Ten-year Treasury yields held at 1.89 percent as of 6:48 a.m. in London yesterday, according to Bloomberg Bond Trader prices. The record low yield was 1.67 percent on Sept. 23.

Hungry for Acquisitions

“Cost of borrowing being low, a debt-free balance sheet and a healthy generation of free cash, all these factors put together makes us hungry for acquisitions,” Tainwala said.

Samsonite (1910) also sees room for organic growth in China, Russia, India and Indonesia, and plans to add 300 stores a year in China, Tainwala said, bringing its number of outlets to 1,800 in 2012 from 1,500 a year ago.

Foreign brands are increasingly counting on China for growth, as consumers in the world’s most populous nation become more affluent. The country’s urban disposable income rose 14 percent to about 21,810 yuan in 2011.

Tainwala expects China to overtake the U.S. as the company’s largest market in the next three to five years. China contributed about 10 percent to the group’s total revenue in 2011, while the U.S. contributed 25 percent.

“In China, more people are now moving to cities. When there are more urban people, they travel more,” said Tainwala.

Dividend Plans

The firm is “on track to deliver all of its IPO promises”, which include delivering a net income target of no less than $64.2 million in 2011, Tainwala said.

Net income dropped to $16.4 million for the first half of 2011, from $30.7 million a year earlier after factoring in IPO transaction costs of $24.8 million, the company said Aug. 29 in a statement. Sales rose 33 percent to $1.17 billion in the first nine months in 2011, according to an October filing to the Hong Kong stock exchange.

“Only a third of our profits are needed to plow back to the existing business in terms of working capital,” said Tainwala. The rest can be used for acquisitions, he said.

Samsonite plans to pay dividends to investors in March for the first time, according to Tainwala.

The company expects sales growth in the U.S. to slow to between 8 percent and 9 percent this year from 20 percent last year and European growth to drop to 2 percent to 4 percent from the year earlier 18 percent, Tainwala said.

“We are injecting caution in our growth outlook, guiding investors with a smaller growth rate,” said Tainwala, without giving a target.

To contact the reporter on this story: Vinicy Chan in Hong Kong at vchan91@bloomberg.net

To contact the editors responsible for this story: Stephanie Wong at swong139@bloomberg.net; Frank Longid at flongid@bloomberg.net

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