Did Tapestry (TPR) Purchase Another Leaked Vessel?

On Thursday, Tapestry Announce plans to buy Competitor Capri Holdings (CPRI) for $8.5 billion, or $57 a share. That means Capri’s brands—Versace, Jimmy Choo, and Michael Kors—will join the Tapestry Company’s existing portfolio of luxury brands, which consists of Coach, Kate Spade, and Stuart Weitzman.

The huge dollars spent in this deal are intended to expand the global reach of the US-based fashion company, said Joanne Krevwezirat, CEO of Tapestry, on the conference call. The merger is expected to complete in 2024.

But Tapestry, which brought in more brands of similar caliber, received mixed reactions from Wall Street. Tapestry stock was down about 16% by the market close Thursday while Capri Holdings shares were up 55%.

According to an industry veteran, the deal may not have been a smart move on the part of Tapestry.

“When I think of the six brands in the combined Capri-Tapestry, there is no brand that I can identify as a strong brand,” Pauline Brown, former LVMH Chairman of North America and author of “aesthetic intelligence“,” Yahoo Finance. “It’s a bit like if you’ve got two boats, and both boats are buoyant, but they each have a little bit of a leak. You put them together, (and) it doesn’t make the two boats—now kind of connected—more powerful on the high seas.”

On the price of the deal, Brown added that Tapestry paid “a healthy double for a company that I didn’t think was healthy.”

Tapestry looks outward wide

But to others on the street, the deal made a lot of sense.

In an interview with Yahoo Finance last fall, Tapestry CEO Joanne Krivwezirate broke down the company’s three-year growth strategy, called “Future Speed.” One of the four pillars is ‘Promoting Global Growth’.

“We’ve proven we have the ability and flexibility to move with customers,” Crevoiserat said at the time. “The consumer moves quickly, and we’ve designed our organization to be able to respond to these changes and to be closer to that consumer.”

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The Capri merger appears to reinforce that strategy.

Simeon Siegel, an analyst at BMO Capital Markets, told Yahoo Finance Live (video above) that the announcement was an “interesting diversification.”

Like Kering and LVMH, he added, “It is now an attempt to broaden the scope and create a version of … the same European powers (in the US)”.

Greg Purtell, senior partner at Kearney Global Markets, also expressed confidence in the deal. “Size matters in retail,” Burtell noted, and “retailers have realized that a range of brands are expanding these touchpoints with consumers.”

In 2017, Coach changed its name to Tapestry after acquiring both Stuart Weitzman and Kate Spade. Portell stated that this deal goes further in providing a “clear platform for growth” while also expanding the Tapestry business.

“The challenge for multi-brand companies — retail or FMCG — is to maintain brand identity and creative integrity while still getting scale efficiencies in the back office,” said Burtell. “Naseej has a proven track record in making this work which gives confidence in thesis acquisition.”

texture in a “weak position”

The deal comes as mergers and acquisitions (M&A) operations are starting to pick up.

In late July, Kering, owner of Gucci, announced, He bought a stake in Valentino. And while not in the luxury segment, other consumer-facing brands have also been active.

On Monday, Campbell Soup Inc. (CPB) acquired pasta sauce maker Sophos Brands on Raw for $2.7 billion. And on Tuesday, Molson Coors (TAP) acquired Blue Run Spirits while Tilray (TLRY) acquired eight beer and beverage brands from Anheuser-Busch InBev (BUD).

in A report from PricewaterhouseCoopersthe company expects “a healthy level of … merger and acquisition activity in the latter half of the year, as the focus of the companies remains on increasing profitability, portfolio diversification, and consumer discretionary.”

In many ways, the Tapestry-Capri deal continues the trend of consolidation in the luxury fashion space.

And though Brown was skeptical about the move, she said, “I don’t think the status quo for these two companies was a good option either.”

Brown added that Naseej was in a “weak” position to begin with. “It wasn’t small enough to be agile, it wasn’t big enough to compete for the best real estate for the best media deals, et cetera.”

Naseej will share it Latest quarterly results next week On Thursday, August 17th.

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Brooke DiPalma is a correspondent at Yahoo Finance. Follow her on Twitter at @BrookeDiPalma Or email her at bdipalma@yahoofinance.com.

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