(Bloomberg) -- Capri Holdings Ltd and Tapestry Inc. scrapped their $8.5 billion plan to merge after a court order froze the proposed combination of the US fashion companies due to antitrust regulators’ objections.
Tapestry, owner of the Coach and Kate Spade brands, and Capri, whose biggest brand is Michael Kors, said they mutually decided to end the agreement as it was in the best interests of both companies.
The judge’s order late last month handed a win to Federal Trade Commission Chair Lina Khan, who opposed the deal on the grounds that it would harm competition in the market for “accessible luxury” handbags.
Shares of Tapestry rose as much as 14% Thursday in New York trading, bringing the stock’s year-to-date gain to close to 60%. Capri shares erased earlier declines to advance as much as 8.1%. Capri stock has dropped nearly 60% in 2024.
Observers said the appeal was likely doomed. The companies acknowledged in their respective statements that it would have been unlikely that the appeal would be resolved by the deal’s Feb. 10 end date. There is no break fee associated with the termination, but Tapestry will reimburse about $45 million to Capri for expenses incurred in connection with the transaction.
The collapse of the deal compounds problems at Capri, which earlier this month reported weak financial results, hurt by lower revenue at Michael Kors. Sales at Versace, another key brand, also tumbled.
Analysts have said they think Capri may have to sell off some of its brands following the failed merger.
Rebuilding Efforts
Capri remains confident in the company’s long-term future and will focus on its three key luxury brands, which also include Jimmy Choo, according to John Idol, Capri’s chairman and chief executive officer. At the same time, during a call with analysts on Thursday, Idol said “we have always been open to conversations with any company that has an interest in any of our assets.”
Nonetheless, Capri’s priority “is to rebuild all three of these houses, to get them on a growth trajectory and to create value for our shareholders through revenue growth, through operating margin growth and ultimately through net income growth,” Idol said on the call.
To achieve those goals, Capri is reviewing Michael Kors’ prices while planning new marketing for next spring. The company will renovate 150 Michael Kors stores over the next two years while closing 75 unprofitable locations. At Versace, Capri plans to add a wider range of prices to increase the products’ appeal and improve the brand’s e-commerce capabilities.
Idol said he’s disappointed with Capri’s recent results, attributing the weakness to softening consumer demand for fashion luxury goods “with an outsized decline in China.” The company will host an investor day in early 2025.
Tapestry Outlook
Tapestry is performing better. It raised its guidance for the year recently due to better-than-expected revenue at Coach. Shares in Tapestry spiked when the deal was blocked in October, as investors had grown concerned about the potential burden of acquiring Capri.
The company also announced a $2 billion share repurchase program on Thursday. Tapestry Chief Executive Joanne Crevoiserat had said in its most recent earnings that the company would make stock buybacks an “immediate priority” if the deal failed.
Neil Saunders, managing director of GlobalData, called the merger’s end a “lucky escape” for Tapestry, which would have “inherited a whole host of problems from multiple broken brands.” For Capri, “an enormous amount of corrective action is needed to get things back on track,” he wrote on Thursday.
--With assistance from Yiqin Shen and Bob Van Voris.
(Updates with shares and adds comments from Capri conference call. A previous version of the story corrected the spelling of Tapestry in the fourth paragraph.)
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