Coach owner's Michael Kors deal creates US giant to take on European luxury rivals

investing.com:

By Aishwarya Venugopal

(Reuters) -Coach parent Tapestry (NYSE:TPR) will buy Michael Kors owner Capri Holdings (NYSE:CPRI) in a deal valued at $8.5 billion, creating a U.S. fashion powerhouse to challenge larger European rivals for a bigger share of the global luxury market.

U.S. luxury firms have consistently lagged their European peers in scale, limiting their ability to compete better. Paris-listed LVMH owns 75 brands, including U.S. jeweler Tiffany and fashion labels Louis Vuitton and Dior.

Thursday's deal will also bring under one roof Tapestry's more affordable luxury brands Kate Spade, Stuart Weitzman and Capri's Jimmy Choo and Versace labels.

«Scale appears to be more and more important in luxury given the resources big conglomerates can put into growing their smaller brands,» Morningstar analyst Jelena Sokolova said.

The combined company generated more than $12 billion in global annual sales in the previous fiscal year, Tapestry said. That compares with about $87 billion for LVMH last year and roughly $23 billion for another European rival Kering (EPA:PRTP).

Tapestry will pay Capri shareholders $57 per share in cash, representing a premium of nearly 65%. The equity value of the deal is $6.69 billion, as per Reuters calculations.

Capri shares rose to $54.12 in afternoon trading on Thursday, while Tapestry fell 14% as investors balked at the $8 billion bridge loan by the company for the deal.

The acquisition is also a bulwark against a looming slowdown in demand for luxury goods in the U.S. as sticky inflation forces customers to cut back on discretionary spending.

"(The weakening demand) has put pressure on Tapestry and Capri, both of which are now looking to international markets to bolster growth. There is more