Michael Kors to Buy Italian Fashion House Versace in $2.1 Billion Deal

Michael Kors Holdings Ltd. KORS has reached a deal to buy Italian fashion house Gianni Versace SpA, as the U.S. conglomerate expands its global fashion luxury group.

Michael Kors said Tuesday it will acquire Versace in a cash-and-stock deal with an enterprise value of €1.83 billion ($2.12 billion). Once the transaction closes, the company will change its name to Capri Holdings Ltd. and trade under the symbol CPRI.

Italian fashion house, Versace which was founded by Gianni Versace 40 years ago, is set to be bought by Michael Kors.

The handbag maker is acquiring Gianni Versace for $2.1 billion, including debt, providing Kors a launching pad into the exclusive high-end European luxury market.

Shares of Michael Kors were down 2 percent in premarket trading on Tuesday, after closing down more than 8 percent Monday when news of the deal leaked. Shares of Tapestry, the parent of rival Coach, were down 1.73 percent in premarket trading.

Following the close of the acquisition, Michael Kors will change its name to Capri Holdings, inspired by an “iconic, glamorous and luxury destination” island, the company said on Tuesday.

It plans to grow Versace to $2 billion in revenue globally and increase its retail footprint from roughly 200 to 300 stores. It also expects to expand accessories and footwear from 35% to 60% of revenues

The deal marks one of the first times an American company has cracked the code of super high-end luxury fashion, typically controlled by LVMH, the owner of Guerlain and Givenchy, and Kering, the owner of Balenciaga and Yves Saint Laurent. Michael Kors had already dipped its toes in European fashion, last year buying shoe brand Jimmy Choo for $1.2 billion.

As part of the deal, Donatella Versace, who has helped run the company since her brother Gianni was murdered in 1997, will stay on to oversee the label. Donatella, her brother Santo and daughter Allegra will also stay on as shareholders in the company. Versace’s management team will continue to be led by its CEO, Jonathan Akeroyd,

That retention will be crucial to Kors as it looks to validate itself to other premium European brands and their visionaries.

“We are all very excited to join a group led by [Michael Kors CEO] John Idol, whom I have always admired as a visionary as well as a strong and passionate leader. We believe that being part of this group is essential to Versace’s long-term success,” Donatella said, as part of the company statement on Tuesday.
While the number of sizable U.S. brands to acquire has dwindled, the European luxury market has become rife with opportunity. As founders and owners of European luxury brands put an eye toward retirement, a number of businesses, like Prada and Giorgio Armani have have been turning up on wish lists for luxury retailers.

Michael Kors said Tuesday that following the deal, the company hopes to reduce its proportion of business in the Americas from 66 percent to 57 percent, while increasing its European business from 23 percent to 24 percent and Asian business from 11 percent to 19 percent.

The global market for personal luxury goods was estimated to be worth $307 billion in 2017, according to recently filed registration documents for luxury marketplace Farfetch, which went public last week. The luxury market is expected to reach $446 billion by 2025, according to the data.

The push further into luxury serves also as a defense for the next economic downturn, more than a decade after the last one in the U.S. Those that can afford a Versace dress are among the most likely to continue to spend during a recession than those who shop more affordably, industry experts say.

“Where Michael Kors has traditionally sat has been hit harder than true luxury [in recessions], so diversifying across traditional luxury may give them some insulation,” said Kathy Gersch, former executive vice president of strategy and change at management firm Kotter.

Still, Michael Kors has some challenges ahead of it with the Italian brand known for its bold prints in the U.S., where the brand has been under-invested, industry bankers tell CNBC.

Michael Kors has been eyeing the luxury space for quite some time. Both it and competitor Tapestry suffered the repercussions of expanding their affordable luxury brands too widely, thereby diluting their stature in the process. Meantime, the malls in which shoppers often pick up their affordable luxury brands have become increasingly desolate as shoppers head online.

Private-equity firm Blackstone, which owns 20 percent of Versace, will cash out as part of its deal.

September 25, 2018