This is not the way Tapestry Inc. wants it to be. or Capri Holdings whose $8.5 billion is expected to end.
But now that the breakup has come – after the order and all-but-final from the Manhattan Federal judge – experts say that Tapestry can continue, continue to build a successful Coach business, and maybe even buy something else.
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Capri is another story, with analysts speculating that the company may have to sell the brand and go private to rebuild.
It has been an expensive fling and ultimately a disappointment.
Tapestry paid $109 million in deal-related fees and $116.7 million in interest expense on debt raised to close the acquisition last fiscal year. Capri recorded at least $25 million in fees related to the deal.
But the real price Capri has paid is in the stock market.
The company’s shares have been buoyed by the prospect of a $ 57 buyout of shares by Tapestry, but fell on Friday after the Federal Trade Commission scored a major victory in the antitrust case against the deal, and closed down 48.9 percent to $ 21.25 on Friday, leaving. parents Michael Kors, Versace and Jimmy Choo with a market capitalization of only $2.5 billion.
The broken deal is partly to blame, but others may be pinned on the performance of the business since the purchase was signed in August 2023.
Capri profits fell 13.2 percent to $ 1.07 billion in the first quarter, with Michael Kors down 14.2 percent to $ 675 million, and an overall operating loss of $ 8 million.
The company usually takes pains to emphasize its strength, but eight days of court testimony repeatedly illustrated how the Michael Kors brand is struggling.
Cedric Wilmotte, CEO of Michael Kors, testified that the brand’s turnaround efforts that will improve the design, combine the brand’s voice and the right size distribution are off track.
“I believe Tapestry is better equipped to take us through the transition,” said Wilmotte.
And John Idol, Capri’s chairman and CEO, said that while one in seven women would carry a Michael Kors bag when they left the Manhattan office during the brand’s 2016 summit, that number might be “one in 200” today, “if we’re lucky.”
“We have worked very hard to get the heat of the brand back to Michael Kors,” Idol said, admitting success has been elusive.
There seems to be more to do.
Jessica Ramírez, senior research analyst at Jane Hali & Associates, said the Michael Kors brand hasn’t seen the “true evolution” it needs.
“It’s out of date in terms of retail strategy, in terms of products, in terms of markets,” Ramírez said. “For a long time, they were very happy with what they had in terms of the product, and they never developed the product.”
Now Michael Kors has to feel like he’s moving forward on his own, without Tapestry’s resources, including the playbook he used to surround Coach.
“I’m assuming that Kors is just getting battered more and more,” Ramírez said. “It is a blessing for Tapestry not to have to deal with such a big problem. But Capri also has Versace, and also Jimmy Choo. So I imagine it can be dismantled. Michael Kors is a big project now, if someone refuses to take it, I think it becomes personal may be the best option.
Oliver Chen, an analyst at TD Securities, sees a similar picture.
“There may be interest in Versace for traditional European luxury conglomerates, such as Kering, due to the company’s presence among Italian luxury, especially after the company’s stake in Valentino,” Chen wrote in a research note. “Jimmy Choo and Michael Kors could be taken private by various private equity firms.”
He added: “There is uncertainty about the leadership and execution of the Michael Kors brand, and we believe the store and the brand need additional investment to grow. In other words, things could get worse before they get better.”
Tapestry, however, looks stronger as the deal is on the way.
Shareholders pushed the company’s shares up 13.5 percent to $50.49, with a market capitalization of $11.8 billion.
To finance the deal, Tapestry sold more than $6 billion in bonds, which will now expire when the contract expires on February 10.
“Companies can wait until after the election results to be clearer about the ambitions of the FTC and (commissioner Lina) Khan before evaluating other, smaller acquisitions,” Chen said. “If Tapestry pursues an acquisition, we believe it may be in the general accessories or clothing category and outside of bags. For example: outerwear, jewelry, or lifestyle, such as beauty and health.
While Tapestry and Capri define their future separately, the rest of the fashion world ponders the future of making deals and what the rules are now.
One thing is for sure, the FTC is a player in the current space and fashion is very fair game.
As Judge Jennifer Rochon wrote in her decision: “Underestimating the importance of handbags as unimportant discretionary items that consumers can only choose not to buy if the price is too high ignores that handbags are important for many women, not only to express themselves through fashion but to help in everyday life – from supporting career aspirations by sending work materials home or inspiring in a professional setting, to holding important personal items such as medicines or personal hygiene products, to bringing small children snacks or toys.
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