Tapestry and Capri Holdings Scrap $8.5 Billion Merger – TPR Stock Bounces on News

Tapestry, Inc. (NYSE: TPR), a leading New York-based house of modern luxury accessories and lifestyle brands, and Capri Holdings Limited (NYSE: CPRI), a global fashion luxury group, have mutually decided to terminate their proposed $8.5 billion merger agreement.

The decision comes as both companies encountered insurmountable legal challenges and were unable to resolve outstanding issues by the predefined deadline.

Tapestry's stock price has gained more than 12% on the news, as markets clearly felt the merger would have had a negative impact on shareholder value. Capri's stock is up mildly in trading today, but has fallen 53% over the past month, after the rejection was first made public.

As part of the termination agreement, Tapestry will redeem $6.1 billion in senior notes connected to the acquisition. These notes will be redeemed at 101% of their principal amount plus any accrued interest. Notably, this dissolution of the merger arrangement requires no break fee. Additionally, Tapestry has agreed to reimburse Capri with $45 million for expenses related to the transaction.

In an effort to create value for shareholders following the termination, Tapestry's Board of Directors has authorized a $2 billion share repurchase program. This buyback will be financed through existing cash reserves and potential future debt, with a strategic aim of maintaining a gross debt to adjusted EBITDA ratio below 2.5 times.

Furthermore, Tapestry reaffirms its commitment to shareholders through dividends, intending to sustain an annual dividend of $1.40 per share and align dividend growth with the company's earnings. The company is targeting a payout ratio between 35% and 40%.

Looking ahead, Tapestry remains optimistic about its financial future, reaffirming its Fiscal Year 2025 outlook with anticipated revenues exceeding $6.75 billion and an earnings per share projection between $4.50 and $4.55.

In the wake of this news, Capri Holdings, whose portfolio includes prominent luxury brands such as Versace, Jimmy Choo, and Michael Kors, reinforced its growth strategies. The company plans to trim the number of Michael Kors stores to about 650 in a bid to strengthen brand positioning over time.

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While the anticipated merger between Tapestry and Capri Holdings faced unavoidable hurdles leading to its cancellation, both companies appear poised to forge ahead with strategic plans designed to optimize growth and enhance shareholder value independently.