Capri Holdings Ltd (NYSE: CPRI) has mutually agreed with Tapestry Inc (NYSE: TPR) to terminate the planned merger that would have combined six luxury brands into one fashion giant.
The news arrives only weeks after a federal judge ruled in favour of the Federal Trade Commission that sued to block the deal over competition concerns in April.
Shares of Capri Holdings had tanked close to 50% following the federal ruling last month and are down another 6.0% on Thursday.
CEO still sees long-term potential in Capri
Despite a failed merger with Tapestry, John Idol – the chief executive of Capri Holdings continues to see long-term potential in his company for “numerous reasons”.
The fashion giant has “recently started to implement a number of strategic initiatives to return our luxury houses to growth,” he added in a statement on Thursday.
Investors can expect more colour on those “reasons” and “strategic initiatives” on the call the company has scheduled with analysts at 11 a.m. ET today.
On the call, investors would particularly focus on commentary around Michael Kors as it’s been the biggest weakness for Capri Holdings in recent years.
Capri stock is currently down more than 70% versus its high in February of 2023.
Will Tapestry pay a breakup fee to Capri Holdings?
Tapestry first announced plans to buy Capri Holdings in August of 2023.
At the time, it agreed to pay $50 million to Capri in case of a failed transaction due to significant regulatory hurdles. But the two companies “mutually agreed to terminate the deal on Thursday.
So, it remains unclear whether Tapestry would still pay a fee to Capri Holdings.
Also today, the owners of Michael Kors, Versace, and Jimmy Choo committed to focusing “on brand desirability through exciting communication, compelling product and omnichannel consumer experience” to boost sales that tanked another 16% in its latest reported quarter.
Capri stock does not currently pay a dividend either.
Why are Tapestry shares gaining on Thursday?
Shares of Tapestry Inc. are comfortably in the green this morning following the news of a failed merger with Capri Holdings.
That’s because analysts had already turned sour on the deal, citing concerns that Tapestry would have to overpay for Capri due to the lengthy approval process.
In fact, termination of the planned merger with CPRI could be a reason to invest in TPR shares considering Evercore ISI sees an upside in them to $63 – a price target that indicates potential for another 17% upside from here.
Tapestry resumed its stock repurchase programme and announced plans to buy back $2 billion worth of its shares on Thursday. The accelerated share buyback programme could lift its EPS estimates for 2025 by up to 3.0%, as per Evercore ISI.
Tapestry also pays a dividend yield of 2.73% at writing which makes up for another good reason to have it in your portfolio.
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