Two trading days after Samsonite International’s share price once again closed above the IPO price, private equity firm CVC Capital Partners and Royal Bank of Scotland teamed up to sell a portion of their remaining stakes in the luggage specialist at a 4.7% discount.
Investors had been expecting a trade from either or both of the two sellers since mid-December when the IPO lock-up expired, but yesterday’s transaction still seemed to take the market somewhat by surprise. Indeed, when a deal didn’t materialise immediately after Samsonite released stronger-than-expected 2011 earnings on March 28, investors who had been selling the stock short in anticipation of a sell-down seemed to become nervous and started to cover their positions, triggering a bit of a short squeeze that helped send the share price 11.6% higher in the past three sessions. Ironically, it may have been this gain that made the two sellers finally decide to go ahead and trim their respective stakes.
The share price is still only 7.9% above the IPO price of HK$14.50, however, and that may be a reason why the sale was modest in size. Given that the two parties owned a combined 44.5% of Samsonite following the IPO in June last year and neither of them are viewed as long-term owners of the stock, one could have expected that their first sell-down post-listing would involve a decent block of shares. At least that seems to be what bankers had in mind as they chased a potential transaction for the past few months.
As it were, the combined block accounted for just 8% of the company, or close to 18% of the sellers combined stake. And as the price was expected to be fixed at the bottom of the range, the total deal size ended up being just HK$1.68 billion ($216 million) – significantly smaller than several other high-profile block trades this year and well below the $1.2 billion the sellers could have raised had they chosen to dispose of their entire stake. However, a larger transaction would likely have required a greater discount and hence it may have been difficult to raise that full amount at current share prices.
Indeed, it seems likely that CVC and RBS are holding on to the majority of their shares in anticipation that the share price will continue to edge higher as investors start to wake up to the fact that Samsonite is quite cheap even at current levels. The latter was put in black and white late on Tuesday when rival luggage maker Tumi filed for a US IPO, using a valuation of 27 times its estimated 2012 earnings. Samsonite currently trades at 16.6 times this year’s earnings, even though it is growing at least as fast. A source noted that the Samsonite is also trading at a price-to-earnings growth (PEG) multiple of just 0.6, compared to about 1 times for both Prada and L’Occitane.
Tumi’s IPO filing likely contributed to the buying of Samsonite shares yesterday.
In hindsight, CVC and RBS are probably relieved that they didn’t attempt to sell a bigger portion since European markets took a heavy beating last night as sovereign debt concerns resurfaced and yields in Italy and Spain spiked sharply higher. In London, the FTSE100 fell 2.2%, while the German DAX index slipped 2.5% and France’s CAC 40 lost 3.1%. Later in the evening, US markets tumbled as well.
Despite the fact that this was happening during the bookbuilding, there was decent demand for the Samsonite block, according to sources, particularly among long-only investors in the US. They were complemented by long-only funds in Asia and a few hedge funds. Almost all the long-only investors that participated were existing Samsonite shareholders. In all about 50 investors came into the deal and there was enough demand to scale back the hedge fund orders somewhat.
CVC and RBS offered a combined 112.5 million shares, which accounted for 20 to 30 days of trading depending on which period one looks at. The split between the two sellers was in proportion to their existing holdings, meaning CVC sold about twice as many shares as RBS. As a result of this deal, CVC’s stake in Samsonite will fall to 23.3% from 28.7% and RBS’s stake will drop to 13.2% from 15.8%.
The shares were offered at a price between HK$14.90 and HK$15.15, which translated into a discount between 3.1% and 4.7% versus yesterday’s close of HK$15.64. As of early this morning, the bookrunners had not yet gone out with the final price, but sources said it was expected to be fixed at the bottom of the range at HK$14.90 for a 4.7% discount — a level that was viewed to be quite tight, particularly in relation to the relative deal size and in light of the rally in the past three sessions.
Even though the sale was smaller than initially expected, suggesting that CVC and RBS will be returning to the market again in the future, investors seem to have welcomed the fact that the two sellers teamed up to do a combined trade. The fear had been that one of them would go first and leave an overhang on the stock as the market waited for the other one to follow. The remaining shares of both sellers are now locked up for 90 days.
CVC bought Samsonite in July 2007 for $1.7 billion. RBS provided financing for the deal and, when Samsonite had financial difficulties in 2009, the UK bank ended up swapping some of its debt into a minority equity stake. Both firms sold about 40% of their holdings in last year’s $1.25 billion IPO.
Samsonite’s share price dipped below the IPO price immediately after the listing, but recovered to hit a high of HK$16.88 in late July. It then fell sharply for the next four months to a low of HK$9.12 in late November. Since then, it has trended steadily higher, adding 71%, and moving above the IPO price on a few isolated occasions in February and March. Last Thursday was the first time in eight months that the stock closed above HK$15.
The block trade was arranged by Bank of America Merrill Lynch, which won the deal away from the five banks that worked on the IPO. The deal was bid out among a selected number of banks after the market closed yesterday.
HSBC, Goldman Sachs, Morgan Stanley, Royal Bank of Scotland and UBS were joint bookrunners for the IPO.