Tapestry (TPR) to Acquire Capri Holdings in a $8.5B Cash Deal
Luxury lifestyle retailer Tapestry, Inc. TPR has been making smart moves to enrich customer experience. In the latest development, it announced plans to acquire Versace and Jimmy Choo parent company, Capri Holdings Limited CPRI. The deal, which is likely to conclude in the next calendar year, will unite the six distinctive iconic brands into a powerful global house of luxury portfolio. The acquisition looks to accelerate Tapestry’s strategic agenda and create a significant value opportunity.
We note that the total enterprise value of the aforesaid deal is nearly $8.5 billion or $57.00 per share. The $57 per share value is equivalent to a premium of roughly 59% to the 30-day volume weighted average price on Aug 9, 2023, whereas the $8.5 billion represents a 9x adjusted EBITDA multiple on a trailing twelve-month basis or 7x with estimated synergies.
This all-cash deal, which has been approved unanimously by both the companies’ board of directors, is subjected to the approval of CPRI’s shareholders. However, the pending transaction is not subject to a financing condition. The purchase price will be funded by senior notes, term loans and Tapestry cash, a part of which is to be used to pay down Capri Holdings’ current outstanding debt.
Importantly, Tapestry, which is also the owner of Coach, unveiled plans to suspend its share repurchase program to prioritize deleveraging through debt reduction. This will help the company to achieve a leverage ratio of below 2.5x debt/EBITDA in 24 months after the closure of the deal. TPR looks forward to reaching a long-term leverage target of under 2.5x debt/EBITDA. On a positive note, the company’s board has approved a 17% hike to its quarterly dividend per share, reaching a payout of $1.40 per share or nearly $325 million in fiscal 2024.
More Details
The blend of Coach, Kate Spade and Stuart Weitzman along with Versace, Jimmy Choo, and Michael Kors into a new global luxury house with unique opportunities will boost the stakeholders’ value. Markedly, the combined company delivered global annual sales of more than $12 billion and approximately $2 billion in adjusted operating profit in the preceding fiscal year with a vast presence in more than 75 countries.
The newly formed company will enhance the portfolio and diversification across consumer segments, geographies and product categories; leverage the acquirer’s consumer engagement platform to boost the direct-to-consumer capabilities; offer opportunity to create significant cost synergies; maximize shareholder returns; generate sturdy cash flows; and make continued progress as a people-centered organization.
The combined company is likely to generate financial returns, such as double-digit earnings per share (EPS) accretion on an adjusted basis and compelling ROIC, accretive to TPR’s existing standalone total shareholder returns plan, and boost capital returns. The combination is expected to realize above $200 million in run-rate cost synergies in three years after the closure of the deal, buoyed by operating cost savings and supply-chain efficiency.
The acquisition deal will develop Tapestry’s portfolio into a $200+ billion global luxury market for handbags, accessories, footwear and apparel categories as well as widen product offerings via higher penetration of lifestyle categories like footwear and ready-to-wear.
Tapestry’s three-year roadmap to drive sustainable top and bottom-line gains and generate significant cash flows to enhance shareholder value, appears positive. The company’s 2025 Growth Strategy focuses on four priorities, which include customer acquisition, retention, and reactivation; product innovation and excellence; robust omnichannel experience; and balanced growth across regions, principally its largest markets, North America and China; and harness opportunities in under-penetrated regions such as Southeast Asia and Europe.
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We note that Tapestry’s shares have lost 18.5% in the past three months against the industry’s 8.2% rise. TPR currently has a Zacks Rank #3 (Hold).
Key Picks
We have highlighted two better-ranked stocks, namely Boot Barn BOOT and American Eagle Outfitters AEO.
Boot Barn, a lifestyle apparel and footwear company, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales suggests growth of 5.1%, from the year-ago reported figure. BOOT delivered an average trailing four-quarter earnings surprise of 13.5%.
American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently carries a Zacks Rank #2 (Buy). AEO delivered an average trailing four-quarter earnings surprise of 9.2%.
The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year EPS suggests growth of 7.2%, from the year-ago reported figure.
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Capri Holdings Limited (CPRI) : Free Stock Analysis Report
