Stocks of Versace and Michael Kors owner Capri Holdings ( CPRI) soared about 57% in early trading Thursday after the fashion conglomerate and owner of Coach Tapestry (TPR) agreed to buy it for $8.5 billion.
Key Points to Remember
- Owner of Coach Tapestry is buying Capri Holdings, owner of Versace, for $8.5 billion.
- Capri Holdings shares rose 57% on Thursday morning after the news.
- The purchase will put six luxury brands under one company.
Tapestry will pay $57 per share for shares of Capri, a 65% premium to Wednesday's closing price. Since Capri revised its financial outlook earlier this year, its share price has fallen almost 50% since February. Previously, it traded at $68 ahead of Capri's expectations downgrade.
The merger will bring together six high-end fashion brands under one banner: Coach, Kate Spade, Stuart Weitzman, Versace, Jimmy Choo and Michael Kors. The new fashion giant expects spending rationalization. The synergy between the two parent companies of the luxury brands will create an opportunity for cost savings of more than $200 million per year, according to Tapestry.
Tapestry expects that the acquisition will immediately improve its earnings per share to double digits after taking into account certain adjustments, as well as an attractive return on investment.
Become a possible American equivalent of French LVMH Moët Hennessy Louis Vuitton (LVMUY), the combined brands will have annual revenue of $12 billion and operating income of nearly $2 billion. Thanks to Capri, owner of Versace and Jimmy Choo, Tapestry will have a more global reach, especially in Europe and Asia.
Deal comes as sales luxury goods are stabilizing at a more normal level after several years of high numbers. Slowing economic growth in the United States and slow post-pandemic recovery in China weighed on sales of luxury goods.
To combat the drop in demand, Tapestry has tried to win over Gen Z via social media platforms such as TikTok. Her Coach brand also picked its best sellers to focus on while reducing markdowns, a strategy she also launched for Kate Spade.
The acquisition is not subject to any financial conditions. Bank of America and Morgan Stanley will finance through a combination of senior notes, term loans and cash, a portion of which will be used to pay off some of Capri's outstanding debt.
Tapestry shares fell down about 13% at noon EST, dragging them to a loss of about 6.4% since the start of the year after trading in the green for most of the year. The jump in Capri shares today has offset most of the massive share price erosion since the start of the year.