After years of trading sideways, high-end luggage maker Tumi Holidngs (NYSE:TUMI) entered a deal to be snatched up by Samsonite International earlier this year for $1.8 billion, or the equivalent of $26.75 a share in an all-cash deal.
The acquisition seems to offer Tumi and its shareholders a respectable end to a short history in the public markets as the company put up steady growth but was not able to completely justify the lofty valuation it debuted with. Shares jumped 40% out of the gate to $26 in its 2012 IPO, and four years later, Tumi trades at the same price. The buyout offer price is 38% above Tumi’s volume-weighted average price of $19.34 for the five days leading up to and including March 2, the last trading day prior to market rumors about the deal.
Operating in a relatively low-risk industry, most of the prior risk in Tumi shares had been tied up with the growth expectations of the stock. With the sale to Samsonite expected to close early in the second half of the year, the stock has virtually no risk. It has traded within a tight range since the buyout agreement, closing, at most, at $27.14. More recently, the range has become narrower, trading within $0.10 of the acquisition price.
That limited trading range indicates that the market strongly believes the deal will go through as negotiated. Unlike some acquisitions, there seems little reason to fear regulatory intervention, nor do investors believe there's a high chance of Tumi receiving a buyout offer from another suitor. The deal includes a no-shop provision, meaning Tumi can't actively solicit bids from other parties, but it can still receive unsolicited bids. If Tumi accepts another bid, it will have to pay Samsonite a $54.7 million breakup fee. However, with over a month passing since the agreement, it seems increasingly unlikely another company will make an offer for Tumi.
What Samsonite gets from Tumi
Samsonite CEO Ramesh Tainwala called the acquisition "transformative," adding that "it will meaningfully expand our presence in the highly attractive premium segment of the global business bags, travel luggage and accessories market." In addition to the complementary nature of Tumi's business, as Samsonite was looking for a foothold in the premium luggage market, Samsonite management also sees potential to leverage Tumi's brand with its retail and wholesale network and create "significant operational and top-line synergies."
Considering that the two brands seem to complement each other with different price points, the acquisition seems like a smart move for Samsonite, especially since Tumi shares had been trading at a discount prior to the agreement.
With Tumi shareholders set to get a cash payout of $26.75 barring the appearance of another bidder and the stock trading within pennies of that price, the best move for Tumi investors may be to sell the stock and reinvest the money elsewhere, rather than leave it in a stock that is fixed to a deal that essentially assures it won't go anywhere.
At this point, the lack of risk in Tumi's stock may be the best reason to look elsewhere for returns.
Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.