Blog #6: Samsonite's decision to buy Tumi Inc. Good idea?

Merger and Acquisitions... A topic that I have never learned about before. This is one of the most important topic in my module. I find it quite interesting because I never knew such term like merger exists. So I did a little bit of research and found out that I have always came across companies that merges together (but never knew about it) to form a new company such as Pixar and Disney (some of my favourite movies are produced by them).

Without merger and acquisition, most of the well-known brands and companies would not be where they are today. Some of the companies are so successful til a point that we can't even remember a time when two were distinct. Where would Disney be without Pixar? Famous movies such as Cars, Toystory, The Incredibles may not even exist!! Oh now I thank God the merger happened.

However, merger and acquisition may not always be the case of success. There were also companies that merged together and ended up bankrupted. Wise decisions must always be made and it is also not an easy task. Sometimes, some companies are better off without another.

Recently I came across a news regarding Samsonite, an American luggage manufacturer and retailer, announced that it would acquire Tumi, a South Plainfield, New Jersey-based luggage manufacturer, in an all-cash transaction worth US$1.8 billion (Financial Times, 2016a). Of course Tumi's shareholders would get something out of the merger request. I didn't know that Samsonite approached Tumi last year but have failed to reach an agreement (Financial Times, 2016b). Well, turned out that Samsonite has gotten what they wanted. It can be seen that they really wanted Tumi to be a part of them.

According to Financial Times (2016a), Tumi's shareholders will receive $26.75 per share in an all-cash transaction, a 38% premium on the volume-weighted average price of the US company's stock up to March 2, before news of the deal broke, which, in my opinion, is quite a good deal. The price represents an enterprise value to the previous year's adjustment earnings before interest, tax, depreciation and amortisation multiple of 13.6 times. Aaron Fischer, the analyst at CLSA said that was above Samsonite's own EV/Ebitda of 11.7 times but it was considered reasonable considering the revenue-boosting opportunities and costs savings.

"Acquiring Tumi will help the Hong Kong-listed company re-balance its portfolio since it has focused more on producing mid-market products" (Financial Times, 2016a) and I think it would be great for them to expand their presence in this competitive market. According to the news, they segment their products on global business bags, travel luggage and accessories market. Samsonite has already expanding its presence in Asia. Therefore the brand is more popular in Asia than US and Europe.

The acquisition of Tumi would help to strengthen their business. Would it? From what I know, Tumi's net sales were $548 million and Samsonite's were $1.2 billion in year 2015 (Financial Times, 2016b). Tumi was considered one third of the size of Samsonite. Is the acquisition really a good idea? However there is also one good advantage of the acquisition, that is to expand the market further with the combination. Within the past weeks, Samsonite and Tumi's share prices were up, which shows good signs (Financial Times, 2016b). With such a huge news of their M&A, I don't think Samsonite's share prices would go up for long. However, it would probably help Tumi's share price to rise.

In my opinion, I think it is not a bad idea of their M&A. Samsonite wanted to expand their product to more market. Tumi is also considered a known brand to some countries. It would be easier for them to reach more of their target markets. I think it is not a bad idea because they could achieve synergies to save the cost of sourcing, distribution, retailing, administrative costs and so on. Also, to be more well known to more countries is one of the synergies that Samsonite can achieve.

Personally, I have never used Samsonite or Tumi's product, but would like to purchase one of their product someday. Though the price ranges were quite high, if the quality is worth the value then I would.

Sources:
Financial Times, 2016a http://www.ft.com/cms/s/0/7a5d1ff2-e198-11e5-8d9b-e88a2a889797.html#axzz45pGnf2lI

Financial Times, 2016b http://www.ft.com/fastft/2016/03/03/samsonite-shares-halted-amid-reports-of-tumi-takeover/?ftcamp=engage/capi/widget/client/openft/b2b

Blog #5: The Company Men (drama), dealing with unemployment.

Today,  I watched the movie, The Company Men, which lasted for about 2 hours. I found that movie quite interesting, mainly because of the handsome actor, Ben Affleck. Just kidding! I love the story line and it gives out an important message which I will state in the end of the blog post.

The drama is about a company named GTX, a multi-billion dollar shipbuilding company in Boston going down, due to the economic downturn. It starred three men (all three in different high levels of position in the company) and how they take their (unemployed) situation in their own ways, as affected by the economic downturn. 

Bobby (Ben Affleck) lost his job and seemed to be too proud to give up his luxuries or to take up a lesser paying job. He refused to adapt to changes as he lost his six figure job. From the drama, I could see that he was eager to find a job after being unemployed. However, he did not want to adapt to changes to take on job which could not pay his required sum of salary. He seems like a very optimistic person because he thinks that he could find new work in no time. 

As months go by, he finally accepted his situation (not easy to get a job) and had to change his lifestyle so much that he sold his Porsche and home to pay mortgages, bills and expenses. He then worked for his brother-in-law when he had no other way. Which I find quite impressive because he finally stopped caring about his 'rich image' and stepped out of his comfort zone to do something entirely different from his old job. It is always good to try something new, right? He became a carpenter, which he had to hammer nails and lift heavy tools. Even if he didn't have any experience in being a carpenter, he is still willing to learn. In my opinion, it is a type of courage that people should have, despite all the hardship he has been through. I also noticed that he learned to be grateful for the little things and started to pay more attention to his children.

Phil (Chris Cooper) is 60 years old and he had worked for GTX for 30 years. He started on the factory floor and got his way up to the current important position in the company, then, got fired. In this drama,  he finds himself outmatched by younger candidates and had commit suicide after he realised that he couldn't get a job in that age. In my opinion, life always have a way. If he is willing to accept different kind of job with lower pays and cut down expenses, he would still be able to survive. He gave up too easily just because of a fall. What about borrowing money from friends and relative to support his bills? There is always solution to everything.

In terms of the company, is firing so many employees really worth it? It may look more favourable in the balance sheet (less wages & salaries) and might be able to help with the rise of share price. However, is there no other way to save the company? The one that surprised me was when Gene, the first employee of GTX and the best friend of the CEO (James Salinger) was also fired from the company.

There are some things that I have learned from the drama:
1. There is always a way if you can adapt to changes and to step out of the comfort zone.
2. Hardships will pass, courage lives on.
3. Unemployment can brings death by a thousand small cuts rather than one major one.
4. What an outplacement is. I never knew what an outplacement was until I watched the movie.
5. People should always have time for their families and not only be grateful when things happen.
6. James Salinger, the CEO of the company, said that "business is not charity". It hit me up. Yes, there is no guarantee to be secured in a job forever. We always have to be prepared for sudden situation like this (getting fired).


Link of the drama:
https://elp.northumbria.ac.uk/webapps/blackboard/content/listContent.jsp?course_id=_274611_1&content_id=_4038879_1

Blog #4: BHP Billiton's dividend cut

Recently, it has been reported that BHP Billiton, an Anglo-Australian mining company, as well as the biggest mining company, had cut down its dividend, lowering the payout for the first time in 15 years (Bloomberg, 2016). According to Bloomberg, the company was trying to protect its balance sheet and credit ratings because of the huge decline on prices of commodities (see image below): the interim dividend was cut down from 62 cents to 16 cents and net loss was 5.67 billion dollars in the six months to 31st of December last year. Ambrose (2016) states that "the collapse of commodities prices and BHP's failed bet on the US shale industry drove its worst ever financial results". It was no wonder that the dividend was cut so much. In order to maintain payout, they would have to cut down dividend. Jac Nasser, the chairman of the company also claims that they did not made this changes lightly (FinancialTimes, 2016)

Source: Financial Times (2016)

The BHP finance director said that "the world has become a lot less certain, there's high volatility, the macro outlook is more uncertain and in particular the oil outlook has changed. We didn't see the depths of the fall in oil prices quite honestly". One of the main reasons why their dividend was cut was because China had slowdown coupled with miners' investments. Another reason is that the oil price was also falling. According to Financial Times (2016), BHP did not foreseen oil price slipping below $30 a barrel.

It is not surprising to see that their share price in Australia dropped for over 40% over the past 12 months.Even the standard & Poor's cut its rating from A+ to A. According to Financial Times (2016), the rating would be downgraded even further depending on the announced dividend policy. This can be seen as a threat to the company.

In my opinion, this kind of news is always very unpredictable, such as the decline in price of oil and commodities. We wouldn't know when will they rise, or when will they decline even further again. In a way, I think it is a wise choice that BHP cut its dividend in order to save its balance sheet Without optimal earnings, BHP is going to damage its balance sheet. I believe that by cutting off dividends, it might be able to prevent the downgrading of their credit ratings. Which can also be a good thing. One way BHP can do to get back up is to restructure there capital structure in order to reduce the amount of gearing. This news has taught me that even though a company had good capital structure, in a few years time, it may not be as good as it was. Companies do have to constantly readjust their capital structure in order to maximize shareholder's wealth.

Sources:
Bloomberg, 2016 http://www.bloomberg.com/news/articles/2016-02-22/bhp-cuts-dividend-as-first-half-profits-fall-92-on-price-rout

http://www.ft.com/fastft/2016/02/22/bhp-billiton-slashes-dividend-as-profits-slide/?ftcamp=engage/capi/widget/client/openft/b2b