Tapestry acquiring Capri Holdings for $8.5B

Tapestry (TPR), which owns Coach, Kate Spade, and Stuart Weitzman, is set to acquire Capri Holdings (CPRI), which owns Michael Kors, Versace, and Jimmy Choo, in an $8.5 billion deal. Capri Holdings shares rose on news of the deal. Yahoo Finance Live takes a look at the deal and its impact on both companies.

Video Transcript

SEANA SMITH: Tapestry reaching a big deal here to buy Capri Holdings for $8.5 billion. We're seeing a massive reaction in Capri stock, up just about 55% right now, while the fashion giant saying that this is going to help expand their global reach. The transaction will see Tapestry, which is the owner of Coach, Stuart Weitzman, and Kate Spade gain control of Michael Kors, Versace, and Jimmy Choo.

And, Akiko, when we take a look at what's been happening within the retail space, specifically within the luxury space, we have seen this pattern of consolidation. We know they are up against some stiff competition. LVMH has long-- has been viewed, I think, fair to say in recent years as the winner, as the leader, I should say, within this space. How much is this materially going to change, though, Tapestry's business going forward? I think a lot of people are starting to question that just given the brands that they have under this umbrella and how much it still resonates or how little maybe it's resonating with consumers these days.

AKIKO FUJITA: Yeah, Seana, that's something we were talking about this morning, right? I mean, if you look at the portfolio of brands that are under Tapestry and Capri Holdings versus LVMH, it still, still pales in comparison to what LVMH has. Having said that, it is interesting timing in all of this. When you think about consumers increasingly pulling back on discretionary spending, what would the announcement today allows these two big retail names, American names, we should say, really, to pull resources together in a big way?

A number of things the companies have announced, that the two groups combined generate $12 billion in revenue. The merger will result in $200 million in savings. We're talking about in operations as well as supply chain costs over the course of 3 years. And then this really does increase the opportunity in terms of direct-to-consumer opportunities for these brands.

So strategically, it makes sense. You know, if the question is, does this allow them to compete with the likes of LVMH in a big way, it feels like there's still a ways off.

SEANA SMITH: Yeah, it feels like they are very far ways off. And it also took the street by surprise-- a little bit by surprise. We're getting some analysts reaction today. BMO Capital Markets Simeon Siegel, he was out saying that this deal was a surprise. He does view it as a positive for Capri shareholders. Remember, this is a stock that was off just about 40% so far this year ahead of this deal.

But he was saying it's a little bit surprising given the similarity, the brand similarity-- Akiko, you just mentioned two US American brands here-- and also, the momentum, the current strategy, potential execution issues, which could arise and likely to arise with the combination of these two well-known names. So I think the future of it and also just given the timing like you were saying with consumers thinking twice before spending on discretionary products makes some people just second-guess, I guess, what exactly the catalyst will be for these two names in the short-term.

AKIKO FUJITA: Yeah, I mean, having said that, when you combine these two forces, it does mean something for the brand. If you look at Capri Holdings, for example, they get more exposure to the Asian markets.

SEANA SMITH: Yeah.

AKIKO FUJITA: You look at somebody like Tapestry, more exposure to EMEA. So we'll still have to see some of those brands, you know, their footprints expand and see how consumers respond. But yes, to your point, you know, luxury brands, just like a lot of brands, certainly going to get hit because consumers are becoming increasingly conservative with their wallets. That space is certainly going to take a hit as a result of that.