Fashion company Tapestry Inc., parent to the Coach and Kate Spade brands, said Thursday it has reached an agreement to acquire Capri Holdings Ltd., the parent company of Michael Kors, Jimmy Choo and Versace, in an all-cash deal valued at $8.5 billion.
The news was first reported by the Wall Street Journal late Wednesday.
Under the terms of the deal which has been approved by both boards, Tapestry will pay $57 per Capri share
CPRI,
equal to a premium of about 59% over the 30-day volume weighted average price through Wednesday’s close.
The deal is expected to immediately boost Tapestry’s
TPR,
adjusted per-share earnings and generate significant cash flow. The company expects to realize more than $200 million in run-rate cost synergies within three years of closing. The companies had combined revenue of more than $12 billion in the prior fiscal year and almost $2 billion in adjusted operating profit.
“The combination of Coach, Kate Spade, and Stuart Weitzman together with Versace, Jimmy Choo, and Michael Kors creates a new powerful global luxury house, unlocking a unique opportunity to drive enhanced value for our consumers, employees, communities, and shareholders around the world,” Tapestry CEO Joanne Crevoiserat said in a statement.
The deal is expected to close in calendar year 2024.
Tapestry said its board has approved a 17% increase in its quarterly dividend to $1.40 a share. And the company has $8 billion in fully committed bridge financing from Bank of America N.A. and Morgan Stanley Senior Funding, Inc.
It expects to fund the deal via a mix of senior notes, term loans and excess cash, part of which will be used to pay certain of Capri’s existing outstanding debt.
Tapestry has engaged with the ratings agencies and is determined to maintain its investment-grade rating. The company will suspend its share buyback activity to give it leeway to prioritize de-leveraging via debt reduction and expects to achieve a leverage ratio of 2.5 times debt/EBITDA within 24 months after close.
The deal is one of the largest fashion-industry acquisitions in recent years.
In May, Capri swung to a loss in its fiscal fourth quarter as revenue slid more than 10%. The stock is down nearly 40% year to date, while the S&P 500
SPX
has gained 16%.
Tapestry reported fiscal third-quarter earnings in May that beat estimates, and the company raised its full-year guidance. Its shares are up 8% year to date.
Capri shares soared 58% premarket on the news, while Tapestry fell 3.9%.
This story originally appeared on Marketwatch
