Did Tapestry (TPR) just buy another leaky ship?
On Thursday, Tapestry announced plans to buy rival Capri Holdings (CPRI) for $8.5 billion, or $57 a share. This means Capri’s brands — Versace, Jimmy Choo, and Michael Kors — will join Tapestry’s existing luxury brand portfolio, which consists of Coach, Kate Spade, and Stuart Weitzman.
The mega dollars spent in this deal aim to expand the US-based fashion company’s global reach, Tapestry CEO Joanne Crevoiserat said on a conference call. The merger is expected to close in 2024.
But Tapestry bringing on more brands of a similar caliber received a mixed reaction from Wall Street. Tapestry stock plunged nearly 16% as of the market close on Thursday while shares of Capri Holdings skyrocketed 55%.
According to one industry veteran, the deal may not be a smart move on the part of Tapestry.
“When I think of the six brands that are in the combined Capri-Tapestry, there is not one that I would define as a power brand,” Pauline Brown, former LVMH Chairman of North America and author of “Aesthetic Intelligence,” told Yahoo Finance. “It’s a little bit like if you have two boats, and both boats are floating, but they each have a little bit of a leak. You put them together, [and] it doesn’t make the two boats — now sort of connected — any more robust on the high seas.”
On the price tag of the deal, Brown added that Tapestry paid “a healthy multiple on a company that I just don’t think was that healthy.”
Tapestry looks overseas to scale
For others on the Street, however, the deal made a lot of sense.
In an interview with Yahoo Finance last fall, Tapestry CEO Joanne Crevoiserat broke down the company’s three-year growth strategy, called “Future Speed.” One of the four pillars embarked on “powering global growth.”
“We’ve proven to have the ability and the agility to move with the customers,” Crevoiserat said at the time. “The consumer is moving fast, and we’ve engineered our organization to be able to respond to those changes and be closer to that consumer.”
The Capri merger seems to further that strategy.