Coach owner to acquire Michael Kors, Versace parent in US$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 US$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 shoe powerhouses – as well as Versace, a go-to brand for Hollywood A-listers looking to make a splash on red carpets.

That will give Tapestry multiple brands marketed around 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 across an upscale portfolio by combining customer data streams, broadening geographic reach and achieving some US$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'

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."

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 57 percent to US$54.49 in early trading, while Tapestry dropped 5.8 percent to US$38.83.