Thursday’s groundbreaking agreement will unify under one umbrella Tapestry’s collection of more accessible luxury brands, namely Kate Spade and Stuart Weitzman, with Capri’s esteemed labels including Jimmy Choo and Versace.
Coach parent company Tapestry has embarked on a transformative journey by striking an $8.5 billion deal to acquire Michael Kors owner Capri Holdings. This strategic move is set to create a robust U.S. fashion force, poised to challenge its larger European counterparts for an enhanced stake in the global luxury market.
The disparity in scale has long hindered American luxury brands from competing effectively against their European rivals. Notably, Paris-listed LVMH boasts an impressive portfolio of 75 brands, which includes prominent names like Tiffany, Louis Vuitton, and Dior.
Highlighting the rationale behind this strategic move, Morningstar analyst Jelena Sokolova emphasized the increasing significance of scale in the luxury sector. Larger conglomerates possess substantial resources to nurture their smaller brands, thus underscoring the allure of scale in the current luxury landscape.
The combined entity reported a remarkable global annual sales figure surpassing $12 billion in the preceding fiscal year, according to Tapestry. In comparison, LVMH achieved approximately $87 billion in revenue last year, while European competitor Kering (PRTP.PA) generated around $23 billion.
In this monumental transaction, Tapestry has agreed to pay Capri shareholders $57 per share in cash, a premium of nearly 65%. The calculated equity value of the deal stands at $6.69 billion, based on Reuters’ calculations.
Capri’s shares surged to $54.50 during early trading on Thursday, contrasting with a 8% dip in Tapestry’s stock. Investor hesitation stemmed from concerns over the $8 billion bridge loan secured by Tapestry for the acquisition.
Beyond its financial implications, this acquisition serves as a strategic buffer against potential headwinds arising from waning luxury goods demand in the U.S. Persistent inflation has prompted consumers to curtail discretionary spending, necessitating new growth avenues.
GlobalData Managing Director Neil Saunders elaborated on this, affirming that both Tapestry and Capri are diversifying their growth strategies by targeting international markets. The merger offers a sense of security as these two luxury titans embark on an ambitious global expansion.
This transformative deal also promises to revitalize Capri’s Michael Kors brand, which has faced lackluster sales in recent quarters. Analysts anticipate improved management under Tapestry’s guidance to reignite the brand’s appeal.
Both Tapestry and Capri have demonstrated a penchant for growth through strategic acquisitions. In 2017, Tapestry (then Coach) acquired Kate Spade for $2.4 billion, while Capri (formerly Michael Kors) made waves by purchasing British shoemaker Jimmy Choo for $1.2 billion. A year later, Capri added Versace to its portfolio for $2.2 billion.
During a conference call discussing the deal, Tapestry’s CEO Joanne Crevoiserat emphasized the company’s intent to broaden and diversify its customer base. She articulated how this move would deepen their connection with luxury consumers and various market segments.
Notably, this acquisition could herald a resurgence of deal-making in the U.S. luxury domain, as European powerhouses continue to acquire premium brands. Recent examples include Kering’s investment in Valentino and LVMH’s substantial acquisition of Tiffany.
Anticipated to contribute positively to Tapestry’s adjusted profit from the outset, the acquisition of Capri is slated for completion in 2024. Furthermore, the deal is projected to yield cost savings exceeding $200 million within three years of finalization, according to statements from both companies.