Coach owner to acquire Michael Kors, Versace parent in $8.5bn deal

Tapestry, the US owner of lifestyle brands including Coach and Kate Spade, said Thursday it will acquire Michael Kors parent company Capri for $8.5 billion, creating a new global fashion giant to compete with European powerhouses.

The unified company will also include Tapestry's Stuart Weitzman and Capri's Jimmy Choo -- both prominent shoe brands -- as well as Versace, a go-to name for Hollywood A-listers looking to make a splash on red carpets.

That will give Tapestry an upscale portfolio with multiple brands focused on shoes and handbags, as well as a strengthened apparel offering with Versace and Kors, also a celeb favorite.

The merger "creates a new powerful global luxury house," said Tapestry chief executive Joanne Crevoiserat.

The all-cash takeover aims to boost sales by combining customer data streams, broadening geographic reach and achieving some $200 million in annual cost savings within three years of the deal closing, a joint press release said.

Executives highlighted Tapestry's superior direct-to-consumer business as an area of potential growth for Capri, which garners more sales in Europe compared with Tapestry, which is stronger in Asia.

Both groups rely on the Americas for a majority of sales, according to a Tapestry presentation.

"We can learn a lot from how they (Capri) built their brands in Europe," Crevoiserat said on a conference call with analysts.

"It's about taking iconic brands with real heritage and design and craftsmanship and combining them with our modern consumer engagement platform," Crevoiserat said.

"That will yield more innovation, more connectivity and more relevance."

CFRA Research analyst Zachary Warring described Capri's brands as "maybe half a step up" on the luxury scale from Tapestry's, with a slightly wealthier customer profile.

The 59 percent premium paid on Capri shares constitutes a "solid price," but Warring cautioned that it could be "at least three to five years before you start to see real gains" at Tapestry, whose shares fell sharply.

Warring said Tapestry may ultimately divest one of the non-core brands to accelerate debt repayment. The deal is expected to close in 2024.

Neil Saunders, managing director of consultancy GlobalData, said the transaction aims to enable Tapestry to benefit from a similar strategy to that employed by European powerhouses like LVMH based around "a patchwork of brands appealing to different segments, rather than by making individual brands ubiquitous."

While "there is a lot of logic behind the deal," Saunders called Capri's price "hefty" and described the state of the Michael Kors brand as a declining "mess."

"Admittedly, Tapestry has plenty of experience of reviving problem brands from its turnaround of Coach, which had become ubiquitous and sullied through constant discounting and promotions," Saunders said.

"Kate Spade was also in a similar position when Tapestry acquired it, and is now emerging in positive form from a successful reinvention. While the same thinking and playbook can be applied to Michael Kors, a turnaround will be far more complex and intricate."

Crevoiserat described Kors as "a strong brand ... with strong consumer resonance and awareness across customer demographics, adding that its customer base "skews slightly younger and more diverse."

"We will work on improving the brand experience," Crevoiserat said.

Both Capri and Tapestry have grown through acquisition. Together, they had revenues of $12.3 billion last year.

Revenues at LVMH -- the world's top luxury group whose brands include Louis Vuitton, Dior and Tiffany -- last year were 79.2 billion euros ($87.2 billion). Sales in 2022 at Kering, home to Gucci and Yves Saint Laurent, were 20.4 billion euros.

Tapestry will finance the deal through a combination of corporate bonds, bank loans and excess cash. Tapestry will suspend its share repurchase plan.

Shares of Capri surged more than 55 percent to $53.90, while Tapestry plunged nearly 16 percent to $34.67.