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Could the Samsonite-Tumi Merger Get Competitive?

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Competitive deals can make your quarter

Competitive deals can make your quarter if you’re a merger arbitrage professional. If you get two companies bidding against each other, a 1% gross spread can easily become a 10% gross spread by the time everything is said and done. We saw that happen in the Salix Pharmaceuticals deal.

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Purchase price was a high premium

The $42 purchase price was a high premium of over 33% to where Tumi (TUMI) was trading on March 2, 2016—the day before the deal was announced. This certainly shows that Samsonite was motivated to get the deal done. That said, we don’t know if any process was run to sell the company. We’ll have to wait until the preliminary proxy statement comes out to find out. It’s important to note that the spread is trading much tighter than a typical arb deal. This means that the market senses the possibility of a counterbid.

Deal comparisons

Arbitrageurs often compare the price the acquirer is paying to the prices of other deals in the same industry. This is always more of an art than science, since no two companies are alike and interest rate environments change. The best comparisons for this transaction include the following:

  • Yankee Candle-Madison Dearborn
  • Playtex-Edgewell

These transactions are the closest deals to the Samsonite-Tumi merger. That said, some of these companies had different growth rates and occurred a while ago, so making comparisons is difficult. To be honest, there aren’t really any good comps for this deal. However, we can say that Samsonite is certainly not “stealing the company.”

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In this transaction, Samsonite is paying about 3.1x revenue and 14.5x EBITDA (earnings before interest, tax, depreciation, and amortization). The revenue multiple is slightly higher than the average revenue multiple for the comparable transactions—3.4x versus 2.6x. It’s higher than the comparable EBITDA multiples—14.5x versus 11.9x.

Other merger arbitrage resources

Other important merger spreads include the Cigna (CI)-Anthem (ANTM) deal. It’s slated to close in 2H16. Another important transaction is Apollo’s purchase of ADT (ADT). For a primer on risk arbitrage investing, read Merger arbitrage must-knows: A key guide for investors.

Investors who are interested in trading in the consumer discretionary sector should look at the Vanguard Consumer Discretionary ETF (VCR).

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