Tapestry, Inc. announced it had reached a definitive agreement to acquire luxury fashion group Capri Holdings Limited, the parent company of Michael Kors (USA), for approximately $8.5 bln in an all-cash deal.
Tapestry also said it had instituted a long-term net leverage target of under 2.5x.
The transaction is subject to shareholder and customary regulatory approvals and is expected to close in the calendar year 2024.
“The acquisition is credit negative, and we put Tapestry’s ratings on review for downgrade,” said a Moody’s analysis.
“Although Capri will increase Tapestry’s scale and customer reach by adding three valuable brands to its global luxury portfolio, the new financial policy will result in materially higher leverage than its typical under 1x net debt/EBITDA in the past,” said Moody’s
“And the acquisition itself will temporarily raise leverage well above the company’s under-2.5x target.”
Tapestry will fund the transaction primarily with senior notes and term loans, with the remaining amount coming from discretionary balance sheet cash.
The company has secured $8 bln in committed bridge financing and will suspend share repurchases until it reaches under 2.5x leverage, which it anticipates within 24 months of close.
Based in New York, Tapestry is a global designer and marketer of premium handbags, accessories, footwear and apparel under the Coach, Kate Spade and Stuart Weitzman brands.
Coach brand revenue was $4.9 bln for the 12 months ending April 1, 2023, generated through nearly 1,000 stores, digital channels, and wholesale partners.
Tapestry also owns the Kate Spade brand, with approximately $1.5 bln in sales, and Stuart Weitzman, a luxury footwear brand, with approximately $290 mln in sales.
Capri Holdings Limited, the parent company of Michael Kors (USA), is a global luxury fashion group which owns iconic brands Michael Kors, Versace, and Jimmy Choo.
The company designs and markets a broad range of premium handbags, footwear, apparel, accessories, jewellery, fragrance, and other products through its stores, digital channels, and wholesale partners.
Revenue was about $5.6 bln for the fiscal year ending April 1 2023.
