American luxury fashion holding company Tapestry has announced, on August 10th 2023, a definitive agreement to acquire Capri Holdings Limited. The deal is being advised by Morgan Stanley and Latham & Watkins for Tapestry, and Barclays and Wachtell, Lipton, Rosen & Katz for Capri Holdings. This acquisition will place all of their 6 constituent luxury and fashion brands under one parent company, namely Coach New York, Kate Spade New York, Stuart Weitzman, Versace, Jimmy Choo and Michael Kors. As per the deal, the Capri Holdings shareholders will receive $57.00 per share in cash, with the total enterprise value placed at approximately $8.5 billion, consisting of $6.8 billion in equity value and $1.7 billion in net debt. Following the announcement of the news, Tapestry’s share price (TPR) fell from $41.24 to $34.67, whereas Capri Holdings’ share price (CPRI) surged by 55.7% from $34.61 to $53.9.
The merged entity aims to utilise the strengths of both prior companies to create a synergy that surpasses the performance of both individual firms. Specifically, Tapestry aims to leverage their cutting-edge data-driven platform to drive consumer engagement. With Tapestry’s 88% and Capri Holdings’ 66% direct-to-consumer (DTC) penetration, the pro forma Tapestry aims to have a combined 79% DTC, with potential to increase DTC penetration over time. Similarly, Capri Holdings’ strengths in global reach and product offering will result in the increased provision of Tapestry’s services in EMEA and Asia, as well as an increased production of footwear and apparel by 5% each relative to accessories. Ultimately, the powerful portfolio of brands under the pro forma Tapestry is estimated to generate a revenue of $12.1 billion and an adjusted operating profit of $1.9 billion.
The announcement of the acquisition reflects an attempt to compete internationally with the existing dominant European firms LMVH, Hermes and Kering, who have an estimated combined market cap of $735.7 billion. In fact, all of these firms have been proactively generating increased revenues, with the recent announcement of Kering’s 30% stake in Valentino and Hermes’ US sales soaring by 22%. However, given the slowdown of luxury markets in North America where high-income consumers are beginning to curtail spending, it is understandable for Tapestry and Capri Holdings’ push to international markets as a means to bolster growth.
Tapestry’s Board of Directors have agreed upon a 17% increase in quarterly dividend yields, resulting in a $325 million payout in Financial Year 2024. The deal itself is not subject to any financing conditions, and is expected to close in 2024.
Written by: Siddh Patel
Sources: Financial Times, Yahoo Finance, Retail Gazette, Capri Holdings Press Release
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