Tapestry, the parent company of Coach, Kate Spade, and Stuart Weitzman, has announced that it will buy Capri Holdings, the owner of Versace, Jimmy Choo, and Michael Kors, for $8.5 billion in a deal that will create a new American luxury giant. The deal, which was announced on Thursday, will combine six iconic fashion brands under one roof and give Tapestry a stronger presence in the global luxury market.
Why did Tapestry buy Capri Holdings?
Tapestry CEO Joanne Crevoiserat said that the acquisition of Capri Holdings was a strategic move that will enhance Tapestry’s competitive position and growth potential. She said that the deal will create a “powerful global house of iconic fashion brands” that will benefit from Tapestry’s “dynamic, data-driven consumer engagement platform” that has fueled its success in recent years.
Crevoiserat also said that the deal will provide significant synergies and value creation opportunities for both companies. She said that Tapestry expects to achieve $200 million in annual cost savings by the third year after the deal closes, as well as revenue synergies from cross-selling and co-branding opportunities. She also said that the deal will diversify Tapestry’s portfolio and geographic footprint, as well as enhance its exposure to the fast-growing luxury segment and the Asian market.
How did Capri Holdings react to the deal?
Capri Holdings CEO John Idol said that he was confident that the deal will deliver immediate value to its shareholders and provide new opportunities for its employees. He said that Capri Holdings has built a portfolio of “three of the most coveted luxury brands in the world” and that joining forces with Tapestry will give it “greater resources and capabilities” to expand its global reach and scale.
Idol also praised Tapestry’s leadership and vision, saying that he has “tremendous respect” for Crevoiserat and her team. He said that he looks forward to working with them to “create an unparalleled American luxury company”.
How did the market respond to the deal?
The market reacted positively to the deal, as Capri Holdings’ shares soared 55% to $53.90 on Thursday, while Tapestry’s shares recovered from an initial drop and closed 1.44% higher at $35.17. Analysts also welcomed the deal, saying that it makes strategic sense and creates value for both companies.
Oliver Chen, an analyst at Cowen, said that the deal is “a win-win” for Tapestry and Capri Holdings, as it creates a “more diversified and balanced portfolio” with “stronger growth prospects”. He also said that the deal is “financially attractive”, as it offers a premium for Capri Holdings’ shareholders and is accretive to Tapestry’s earnings.
Erinn Murphy, an analyst at Piper Sandler, said that the deal is “a bold move” for Tapestry, as it transforms it into a “global luxury powerhouse” with “a more balanced mix of brands”. She also said that the deal is “a positive catalyst” for Tapestry, as it enhances its margin profile and cash flow generation.
What are the details of the deal?
The deal values Capri Holdings at $57 per share, which represents a 39% premium to its closing price on Wednesday. The total enterprise value of the deal is $8.5 billion, which includes Capri Holdings’ net debt of $1.9 billion. The deal will be funded through a combination of new debt, cash on hand, and stock issuance. Tapestry will assume some of Capri Holdings’ outstanding debt and refinance it with lower-cost debt.
The deal is expected to close in mid-2024, subject to regulatory approvals and shareholder votes. The combined company will operate under the name Tapestry and will be led by Crevoiserat as CEO and chairman. Idol will join Tapestry’s board of directors as vice chairman. The six brands will retain their own identities and creative teams.
