What happened
Shares of Capri Holdings (CPRI +1.92%) were up 56% at 10:08 a.m. ET on Thursday after Tapestry agreed to acquire the company for $57 per share for a total value of $8.5 billion. The companies will combine their leading brands to create a global fashion powerhouse that can better compete in the global luxury goods industry.
So what
The luxury goods industry should grow again this year after a record 2022. The market is projected to more than double by 2030, according to Bain and Company.
Falling inflationary pressures are creating more demand, which is an opportunity for leading players like Tapestry, which owns Kate Spade, Coach, and Stuart Weitzman. Tapestry needs Capri's Versace, Jimmy Choo, and Michael Kors brands to broaden its portfolio and gain valuable customer data to better compete with the big fashion houses in Europe.
Companies that can meet consumer demand across more categories and styles are in the best position to deliver growth for shareholders. The combination of Tapestry and Capri will bring together a portfolio of brands covering handbags, accessories, apparel, and footwear.
Last year, the combined revenue of the companies was $12 billion, with adjusted operating profit of $2 billion. However, another attractive feature of the deal is that another $200 million of profit could be realized through supply chain efficiencies and cost-saving measures within three years of the acquisition.
Now what
The acquisition is scheduled to close in calendar 2024, when Tapestry will pay $57 for each share of Capri. Tapestry sees a highly profitable transaction for its shareholders. The company already announced an increase to the quarterly dividend of 17%, but it's also suspending its share repurchase program to reduce debt.
Capri shareholders could consider selling now and buying shares of Tapestry, which has reported growing revenue and higher margins over the last few years and trades at a single-digit forward price-to-earnings ratio. It could be a bargain once the deal is completed and the synergies are realized.
