The Wall Street Journal reported on Wednesday that Tapestry Inc., the owner of Coach, Kate Spade and Stuart Weitzman, is close to a deal to buy Capri Holdings Ltd., the parent company of Michael Kors, Versace and Jimmy Choo, for about $2.5 billion in cash and stock. The deal would create one of the largest luxury fashion conglomerates in the world, with combined annual sales of more than $10 billion.
A Strategic Move to Expand Global Presence and Diversify Portfolio
The acquisition would be a strategic move for Tapestry, which has been looking to expand its global presence and diversify its portfolio of brands. Tapestry, formerly known as Coach Inc., changed its name in 2017 after acquiring Kate Spade and Stuart Weitzman. The company has been focusing on growing its online sales, improving its supply chain and enhancing its customer loyalty programs.
Capri Holdings, formerly known as Michael Kors Holdings Ltd., also changed its name in 2018 after acquiring Versace and Jimmy Choo. The company has been investing in its flagship brands, opening new stores, launching new products and collaborating with celebrities and influencers. Capri Holdings has a strong presence in Europe and Asia, especially in China, where it has been growing rapidly.
By combining their strengths, Tapestry and Capri Holdings would be able to leverage their scale, reach and resources to compete more effectively in the global luxury market, which is expected to grow by 10% to 12% this year, according to Bain & Company. The deal would also give them more bargaining power with suppliers, landlords and retailers, as well as more opportunities to cross-sell their products and services to their existing and potential customers.
A Potential Challenge to LVMH’s Dominance
The deal would also pose a potential challenge to LVMH Moët Hennessy Louis Vuitton SE, the world’s largest luxury group, which owns brands such as Louis Vuitton, Dior, Fendi and Tiffany & Co. LVMH has been dominating the luxury sector with its unparalleled portfolio of brands, its strong digital presence and its ability to attract young and affluent consumers.
LVMH reported a 56% increase in revenue in the first half of 2023, reaching €28.7 billion ($33.9 billion), driven by a strong recovery in demand across all regions and segments. The company also announced a 10% increase in its interim dividend, reflecting its confidence in its future prospects.
However, LVMH could face some competition from the combined entity of Tapestry and Capri Holdings, which would have a more diversified portfolio of brands across different price points, categories and geographies. The deal would also give Tapestry access to some of the most iconic and coveted luxury brands in the world, such as Versace and Jimmy Choo, which have a loyal fan base and a high level of brand awareness.
A Win-Win Situation for Both Parties
The deal would be a win-win situation for both parties, as they would be able to benefit from each other’s strengths and synergies. According to The Wall Street Journal, Tapestry would pay about $16.50 per share for Capri Holdings, which represents a 25% premium over Capri’s closing price on Tuesday. Capri shareholders would receive about $11.75 in cash and 0.36 Tapestry shares for each Capri share they own.
The deal would value Capri at about $2.5 billion, or about 10 times its earnings before interest, taxes, depreciation and amortization (EBITDA) for the fiscal year ended March 2023. This is lower than the average valuation of 13 times EBITDA for comparable luxury companies, according to Refinitiv data.
The deal would also be accretive to Tapestry’s earnings per share in the first year after closing, which is expected to happen by early 2024. The deal would generate about $300 million in annual cost savings within three years of closing, mainly from reducing corporate overheads, optimizing sourcing and procurement, and streamlining distribution networks.
The deal would also create significant revenue synergies by expanding the distribution channels, enhancing the online platforms, increasing the customer loyalty programs and creating more collaborations and partnerships across the brands.
The deal has been unanimously approved by the boards of both companies and is subject to regulatory approvals and customary closing conditions. The deal is expected to close by early 2024.
