Tapestry, the US owner of lifestyle brands such as Coach and Kate Spade, announced Thursday that it will acquire Michael Kors parent company Capri for $8.5 billion, creating a new global fashion powerhouse to fight with European behemoths.
The merged firm will also feature Stuart Weitzman of Tapestry and Jimmy Choo of Capri, both shoe powerhouses, as well as Versace, a go-to brand for Hollywood A-listers looking to make a statement on red carpets.
Tapestry will gain many brands centered on shoes and handbags, as well as a stronger clothes offering with Versace and Kors, both of which are celebrity favorites.
The merger “creates a new powerful global luxury house,” said Tapestry chief executive Joanne Crevoiserat.
The all-cash takeover aims to boost sales across an upscale portfolio 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.
“We’ve created a dynamic, data-driven consumer engagement platform that has fueled our success,” Crevoiserat said.
“From this position of strength, we are ready to leverage our competitive advantages across a broader portfolio of brands.”
‘Patchwork of Brands’
According to Neil Saunders, managing director of consultancy GlobalData, the transaction will allow Tapestry to benefit from a strategy similar to that used by European powerhouses such as LVMH, which is based on “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.”
Tapestry will fund the transaction with a combination of corporate bonds, bank loans, and cash on hand. Tapestry will halt its share repurchase program.
Capri shares jumped more than 57% to $54.49 in early trading, while Tapestry fell 5.8 percent to $38.83.