Special Situation Investing

Tuesday, November 21, 2006

Samsonite (SAMC.OB) Announces Special Dividend

Luggage producer Samsonite (SAMC.OB) made a major announcment today causing the stock price to soar 20% to $1.11. There are a number of elements to the announcement but I feel the following are the most critical:

1) The company, with a current market cap of $252 M intends to issue a special dividend of $175 M. The dividend is contingent on the company's ability to obtain over half a billion dollars in loan financing.

2) The company has sizable preferred shares outstanding and over 90% of the holders have agreed to convert to common equity if the special dividend goes through.

If all preferred shares were converted ~480 M shares would be produced, against a current base of ~230 M shares. Obviously this will heavily dilute the existing share base. There are also sufficient options & warrants to purchase ~85 million shares. All told, full warrant/option/preferred share conversion would result in the share count shooting up to 770 M from 230 M. At this maximum number, existing shareholders would receive $.227 per share or a payout of approx %20.4 at current prices.

On the flip side, the preferred shares convert at $.42 per share. If all 480 M converted, the company would rake in ~$200 M, more than sufficient to cover the dividend. It should also be noted that the preferred shares have $42 M in dividends owing. It is not clear to me whether this value would be erased with conversion.

3) The company is attempting to repurchase ~$300 M in bonds. The repurchase is contingent, again, on it's ability to obtain the half-billion in new loans I referred to in point 1. While they do not explicity make clear the reason for the debt swap I would assume it is in an effort to refinance at a lower rate.

To summarize, this is neither a buy nor a sell idea. I will continue to watch Samsonite but at this point I am just passing on the analysis I have already done. I currently have no intention to buy Samsonite stock and do not currently own any.


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