The American Tapestry, owner of the Coach brand, will buy for 8,500 million dollars (7,700 million euros), the Capri group, also American and owner of Versace, Michael Kors and Jimmy Choo. You'll pay $57 for each of your shares, a 59% premium over last month's price.
The operation will give rise to a new luxury giant with a global turnover of 12,000 million dollars, a presence in 75 countries and 33,000 employees. Combined, they are around $2 billion in operating profit, but will face challenges like a profound turnaround for Michael Kors.
The purchase represents another focus on luxury, seeking greater strength to compete with titans such as LVMH –Louis Vuitton, Christian Dior– or Kering –Gucci, Balenciaga–. With handbags, footwear, accessories and apparel brands, the acquisition "establishes a powerful matrix of iconic luxury and fashion brands across all consumer segments globally," it said in a statement. They will be the fourth largest group in the world and second in the US, after LVMH. The transaction is expected to be completed by 2024. Tapestry also owns Kate Spade and Stuart Weitzmann.
One of the challenges will be to turn around the business of Michael Kors, whose revenues have fallen more than its competitors in recent quarters, in which inflation weighs on purchases. “Tapestry has a lot of experience in reviving troubled brands since its transformation from Coach, which had deteriorated with constant discounts and promotions,” GlobalData analyst Neil Saunders recalled in a research note. Of course, now it will be "more complex and intricate". The idea is to focus more on direct sales to the end customer instead of having so much presence in department stores and shopping centers. Something that will apply to the rest of the group: while Tapestry depends on just 10% of the sales in that segment, in the case of Capri they are a third. It will also seek to grow in Asia. The forecast is that Capri's billing will grow to single digits in the next three years, as recognized in a call with analysts.
Joanne Crevoiserat, Tapestry's CEO, blessed the deal for the value it will create "for customers, employees and shareholders around the world." For now, the markets penalized Tapestry's shares, with a strong fall of 14%, by stopping the repurchase of titles and assuming more debt, since it will be paid mainly with 8,000 million financed by Bank of America and Morgan Stanley. The purchase, which will have to be approved by regulators, will not prevent Tapestry from increasing the dividend by 17%.
Capri shares rose 60%, matching the purchase price. “We will have more resources and capabilities to accelerate our internationalization. It is an example of what we have achieved in turning our brands into the iconic and powerful fashion houses that they are today”, said John Idol, president of Capri.
