American Tapestry, owner of the Coach brand, will buy the Capri group, also American and owner of Versace, Michael Kors and Jimmy Choo, for 8.5 billion dollars (7.7 billion euros). It will pay $57 for each share, a 59% premium over last month's price.
The operation will give rise to a new luxury giant with a global turnover of 12 billion dollars, a presence in 75 countries and 33,000 employees. Combined, they're around $2 billion in operating profit, but they'll face challenges, like a deep turnaround for Michael Kors.
The purchase represents another concentration in luxury, looking for more strength to compete with titans such as LVMH - Louis Vuitton, Christian Dior - and Kering - Gucci, Balenciaga -. With handbags, footwear, accessories and apparel brands, the acquisition "establishes a powerful array of iconic luxury and fashion brands across all consumer segments globally," it said in a statement. They will be the fourth largest group worldwide and second in the United States, after LVMH. The operation is expected to be completed throughout 2024. Tapestry also owns Kate Spade and Stuart Weitzmann.
One of the challenges will be turning around Michael Kors' business, whose revenue has fallen more than its competitors in recent quarters as inflation weighs on purchases. "Tapestry has a lot of experience reviving troubled brands since the transformation of Coach, which had deteriorated with constant discounts and promotions," GlobalData analyst Neil Saunders wrote 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 so much presence in department stores and shopping centers. Something that will apply to the rest of the group: while Tapestry relies on barely 10% of sales in this segment, in the case of Capri it is a third. It will also aim to grow in Asia. Capri's revenue is expected to grow in the single digits over the next three years, he acknowledged on a call with analysts.
Joanne Crevoiserat, CEO of Tapestry, blessed the operation for the value it will generate "for customers, employees and shareholders worldwide". At the moment the markets penalized the shares of Tapestry with a sharp fall of 16% because the repurchase of titles was slowed down and meant more debt, since it will be paid mainly with 8 billion financed by Bank of America and Morgan Stanley. The purchase, which will have to be approved by regulators, will not prevent Tapestry from increasing its dividend by 17%.
Shares in Capri jumped 60% and nearly matched the purchase price. "We will have more resources to accelerate internationalization. It's a testament to what we've achieved by turning our brands into iconic and powerful fashion houses," said John Idol, president of Capri.
