On November 14, Tapestry, Inc. announced that it has mutually agreed to terminate the merger agreement with Capri Holdings Limited. With this decision, Tapestry intends to further focus on growth strategies for its iconic in-house brands, such as Coach, Kate Spade, and Stuart Weitzman.
Tapestry had initially planned to acquire Capri Holdings for $8.5 billion to unite brands like Coach, Kate Spade New York, Versace, Jimmy Choo, and Michael Kors under one umbrella, aiming to create a powerful luxury conglomerate capable of competing with European rivals like LVMH and Kering.
However, on October 24, the Federal Trade Commission (FTC) raised concerns, claiming that the acquisition would limit market competition and pose a risk of price increases. Following this, Tapestry promptly issued a statement emphasizing that the FTC’s temporary restraining order was deeply regrettable and an incorrect decision both legally and factually.
The decision to end the merger agreement was made as the best course of action for both companies, given the legal uncertainties and the anticipated challenges in resolving the matter by the set deadline.
Joanne Crevoiserat, CEO of Tapestry, commented on the company’s future strategy, stating, “Tapestry remains in a position of strength, with distinctive brands, an agile platform, passionate teams, and robust cash flow. We have significant runway ahead and are pleased to announce today an additional shareholder return program, as we believe there is no better investment at this time than our own stock.”
Scott Roe, CFO and COO of Tapestry, also stated, “Tapestry’s steadfast commitment to deliver meaningful shareholder value is unchanged. Our strong and consistent cash flow underpins our foundational commitments to invest in our brands and business as well as fund our dividend program. Further, today’s additional $2 billion share repurchase authorization highlights the strength and flexibility of our balance sheet to unlock incremental value, while maintaining our firm commitment to a solid investment grade rating. We are confident in our compelling long-term organic growth agenda and the opportunity to deliver enhanced value to all stakeholders for years to come.”
Tapestry aims to use its cash flow to increase shareholder returns through share buybacks and dividend enhancements. The company’s capital allocation strategy focuses on reinvesting in brands and businesses, maintaining dividends, preserving its investment-grade rating, using excess cash flow for share buybacks, and strategic portfolio management for long-term value creation. Currently, the company has no plans for additional acquisitions, choosing instead to focus on the growth of Coach and Kate Spade.
With the termination of the merger agreement, Tapestry intends to redeem the $6.1 billion in senior notes related to the acquisition as planned. Part of the funds for the share repurchase program is expected to come from future debt issuance, with the company aiming to keep its long-term leverage target below 2.5x and secure its investment-grade rating.
The company also reaffirms its fiscal 2025 outlook and plans to update its forecast in its next earnings announcement.