Tapestry's Acquisition of Capri Holdings Creates US Luxury Powerhouse to Compete with European Rivals

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Coach Parent's $8.5 Billion Deal Aims to Bolster American Luxury Presence on Global Stage


Tapestry's Strategic Move: Acquiring Capri Holdings to Bolster US Luxury Standing


In a significant development, the parent company of Coach, Tapestry, has unveiled plans to acquire Capri Holdings, the owner of Michael Kors, in a groundbreaking deal valued at $8.5 billion. This strategic move aims to form a formidable American fashion entity that can effectively compete with larger European counterparts, striving for a greater market share in the global luxury sector.


U.S.-based luxury brands have long trailed behind their European counterparts in terms of scale, limiting their competitive edge. The towering Paris-listed LVMH, for instance, possesses an impressive portfolio of 75 brands, including renowned names like Tiffany, Louis Vuitton, and Dior.


This deal, announced on Thursday, not only unifies Capri Holdings with Tapestry but also consolidates Tapestry's more accessible luxury brands, including Kate Spade and Stuart Weitzman, with Capri's high-profile labels like Jimmy Choo and Versace.


The synergy resulting from the acquisition aims to address the increasing importance of scale within the luxury domain. Larger conglomerates can channel more resources into nurturing their smaller brands, as explained by Morningstar analyst Jelena Sokolova.


Combined, the newly formed entity reported global annual sales exceeding $12 billion in the last fiscal year, positioning it as a robust player. While this figure is dwarfed by LVMH's approximately $87 billion and Kering's roughly $23 billion, the move reflects a step towards challenging the dominance of European luxury giants.


Tapestry's offer of $57 per share in cash to Capri shareholders represents a premium of nearly 65%, leading to an equity value of approximately $6.69 billion. Shares of Capri surged to a six-month high, while Tapestry faced investor skepticism due to an $8 billion bridge loan for the acquisition.


Apart from strengthening market presence, the deal serves as a defense against potential decreased demand for luxury goods in the U.S. amid persistent inflation concerns. This challenging landscape prompts Tapestry and Capri to pivot towards international markets to stimulate growth and mitigate risks.


Notably, the acquisition presents an opportunity for Capri to revitalize its Michael Kors brand under the guidance of Tapestry, especially following lackluster sales in recent quarters.


The acquisition echoes both companies' history of growth through acquisitions. In 2017, Tapestry, then known as Coach, acquired Kate Spade for $2.4 billion, while Capri, formerly Michael Kors, purchased Jimmy Choo for $1.2 billion in the same year. This trend continued with Capri's acquisition of Versace for $2.2 billion in 2018.


The deal reflects a resurgence of U.S. luxury sector deal-making, as European counterparts expanded their high-end brand portfolios. Set to conclude in 2024, the transaction is projected to yield over $200 million in savings within three years of closing.


While separately, Capri reported a drop in its first-quarter total revenue, the strategic acquisition points to an ambitious future for the combined entity in the competitive world of luxury fashion.

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