Tapestry’s stock fell by 32% after the deal with Capri holdings

There have been two different market reactions to Tapestry’s acquisition of Capri holdings. Since the two US-based luxury companies announced their agreement on August 10th, one company’s stock prices have plummeted, but the other’s have significantly increased and continued to remain up. On one hand, Tapestry experienced a decline of 32.2%, with its share price dropping from 41.24 dollars per share (about 38.42 euros at the current exchange rate) during the close on Wednesday, August 9th, to 27 dollars (25.1 euros) now. The parent company, which encompasses Coach, Stuart Weitzman, and Kate Spade, lost over 6.5 dollars (about 6.05 euros) during the session following the announcement, resulting in a near 16 percentage point decrease in value within a single day, while Capri holdings gained 55.7% in a day following the deal, with shares rising 19.3 dollars (17.9 euros) from 34.61 dollars (32.24 euros) to a peak of 53.9 dollars (50.21 euros) per share on August 10th. In fact, the stock continued to rise subsequently, with an overall increase of 47.5% from August 10th until today.

Tapestry’s management repeatedly expressed their enthusiasm for the lucrative economic profile and potential synergies of the combined entity. The global entity generated over 12 billion dollars in sales and has a presence in 75 countries with nearly 2 billion dollars in adjusted operating profit. At current values, it has a market capitalization of over 12.3 billion dollars (11.4 billion euros). This is slightly lower than three months ago, when the combined market capitalization of the two groups was around 14 billion dollars (13 billion euros). Under the final deal, Tapestry will buy out Capri holdings, and its shareholders will receive 57 dollars (53.1 euros) per share in cash, with its Michael Kors, Versace and Jimmy Choo labels, which are valued at approximately 8.5 billion dollars. Capri holdings shareholders approved the deal recently, marking a significant step towards the finalization of the acquisition. What is the reasoning behind Tapestry group’s investment in the holding company led by chairman and ceo John D. Idol? Michael Kors is likely one of the most appealing assets. Analysts from Goldman Sachs, who recently met with management, explained that the New York-based company’s main objective is to boost the US-made brand’s relevance and are optimistic about the potential for growth through the direct-to-consumer channel and e-commerce. Additionally, the board envisions great possibilities emerging from the two businesses’ combined synergy, notably through the integration of their supply chains, such as Michael Kors’ leather goods. «Tapestry remarked that key partners, including wholesalers and suppliers, responded positively to the acquisition announcement», analysts from the investment bank said. «In the wholesale sector, Tapestry identified that the increase in scale could enhance the sales model with improved service levels». In addition, the digital level would also yield benefits. «Management emphasized the potential for integrating Capri holdings’ robust brands into its digital platform, subsequently enhancing consumer engagement. Furthermore, Tapestry completed most complex backend tasks, streamlining the integration process», Goldman Sachs analysts said, emphasizing the company’s commitment to maintaining its rating investment grade and is confident in its ability to deploy strategies, even if the consumer macroeconomic environment worsens. Pending both companies’ financial results, scheduled for Thursday, November 9th, analysts are positive. «We rate Tapestry as a buy with a target price of 46 dollars (42.8 euros) for the 12-month period. Our estimates and target price do not include the acquisition of Capri Holdings», analysts noted. «Potential risks in revenue momentum weakening, increased levels of industry promotion, volatility, and potential disruptions in the consumption environment in China exist». 12 out of 20 involved experts, including Citi, Wells Fargo, and Telsey advisory group, advocate for buying, while 3 rating accumulate and 5 rating hold. Conversely, the average rating for Capri holdings stock is hold.

Could Tapestry consider divesting from Versace?

While Michael Kors may be of the greatest interest for Tapestry, the same may not be true for Versace. Market rumors have circulated in recent weeks, although they remain unconfirmed, claiming that the Coach, Stuart Weitzman, and Kate Spade group is weighing the possibility of divesting from Versace, and instead solely retaining the US Designer’s brand and Jimmy Choo footwear after acquisition of Capri holdings. In fact, John D. Idol, the ceo of Versace’s parent company, has had two other offers in addition to the one from Tapestry in recent months, according to recent reports in the international press. The rumored purchase proposals, which involve only Versace and Jimmy Choo, allegedly came from French luxury group Kering and Exor, the holding company of the Agnelli family, which has ownership of Chinese luxury brand Shang Xia and Christian Louboutin. However, John Elkann’s proposal is reportedly being more carefully considered as opposed to entrepreneur François-Henri Pinault’s, which was deemed too low. Among other options, John Elkann’s proposal included a possible ipo of the two labels or the acquisition of a minority stake in Capri holdings. At the moment, there are no further updates. Last september, backstage at the spring-summer 2024 fashion show, fashion designer Donatella Versace spoke with MFF about the change of ownership: «I have not met the new partners, but I welcome the change as it is a positive sign». (All rights reserved)