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Why Shares of Tumi Holdings Inc. Rocketed Higher Today

By Timothy Green - Mar 3, 2016 at 12:14PM

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The luxury luggage maker is reportedly in talks with Samsonite to be acquired.

Image Source: Tumi

What: Shares of luxury luggage maker Tumi Holdings ( TUMI ) surged on Thursday following a Wall Street Journal report that luggage giant Samsonite International was close to acquiring the company. At 11:20 a.m. EST Thursday, shares of Tumi were up about 27%, while Samsonite ADRs were up about 2.5%.

So what: While exact terms of the deal aren't known, the acquisition of Tumi could carry a $2 billion price tag, according to The Wall Street Journal, well above the company's $1.4 billion market capitalization prior to Thursday's surge. In 2015, Tumi reported $548 million of revenue and $63 million of net income. Samsonite is far larger, with 2014 revenue of about $2.4 billion.

Samsonite went public in Hong Kong in 2011 after being taken private in 2007 by a private equity firm. The company is the largest travel luggage company in the world, and a deal for Tumi would boost annual revenue by about 18.5%. Tumi has grown quickly over the past few years, more than doubling annual revenue since 2010, and the company's high-teens operating margins are substantially higher than those of the larger Samsonite.

Now what: If a deal goes through for around $2 billion, Samsonite will be paying a high price for Tumi, nearly 32 times 2015 earnings. At this point, there's no guarantee that a deal will through, but something could be announced as early as this week, according to the WSJ. For Tumi investors, the deal price would likely be above the stock's all-time high, depending on the premium Samsonite is willing to pay.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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