Capri Holdings: A Takeover Opportunity Waiting in the Wings?

I'm currently in Singapore for the F1 with 38 fellow investors, and the atmosphere here is absolutely electric. Here’s a pic I took this morning

This event, organized annually by one of my good friends who lives in Singapore, always brings together an amazing community of like-minded individuals & investors.

The best part of these trips is the conversations - hearing what everyone is buying, and learning about the deals that make the most sense and offer the best opportunities.

It's all about discovering those undervalued & hidden gems….

One company that's emerged so far is LIFT Power, (on the TSX-V) an incredibly undervalued lithium play based in Yellowknife.

The company's flagship asset is the Yellowknife lithium project located in Northwest Territories, Canada.

They also hold three early-stage exploration properties in Quebec, Canada, with excellent potential for the discovery of buried lithium pegmatites, as well as the Cali project in Northwest Territories within the Little Nahanni pegmatite group.

As you know I’m quite bullish on Lithium, so I’ll be diving more into this later with a detailed overview to see if it meets my investment parameter’s.

For now, time is tight and the schedule is jam packed, but I wanted to write something quickly on something else I’ve uncovered.

Capri Holdings, which is on the verge of a potential takeover.

Sometimes, the market gifts us unique opportunities - especially when takeovers are involved.

These situations often offer the chance for substantial gains if one can assess the risk vs reward correctly.

And right now, we've spotted a gem: Capri Holdings (NYSE: CPRI). (at least I think we have)

Capri, the parent company of Michael Kors, Versace, and Jimmy Choo, is at the center of a potential $8.5 billion takeover by Tapestry (owner of Coach and Kate Spade), announced last summer (2023).

If this deal gets approved, Capri’s stock will move from its current price of around $38 to a target of $57, or a jump of about 50%.

The court proceedings for the merger began in early September (2024), following a legal challenge from the U.S. Federal Trade Commission (FTC).

The FTC is trying to block Tapestry’s $8.5 billion acquisition of Capri Holdings due to concerns about reduced competition in the "accessible luxury" handbag market, particularly focusing on brands like Michael Kors and Coach.

The trial, which began on September 9, 2024, is expected to last for about a week and a half, which puts us pretty close to today, and I’ve just found out about this which is why I wanted to write something quickly.

During this period, the court will hear arguments from both sides, including testimony from key figures like Tapestry's CEO and designer Michael Kors.

The FTC argues that the merger could lead to higher prices and fewer choices for consumers, while Tapestry and Capri argue that the deal would ultimately benefit consumers and strengthen both brands.

A ruling on whether the deal will be blocked or allowed to proceed is expected after the the trail, aka any day now.

Capri has struggled in recent years, especially with its Michael Kors brand.

However, this takeover is not just a lifeline - it’s a strategic move by Tapestry to form one of the largest luxury houses in the world.

By combining forces, they aim to compete more effectively with European conglomerates like LVMH and Kering, who dominate the luxury space.

Despite the potential benefits for both companies, the deal is currently under intense scrutiny by the US Federal Trade Commission (FTC), which has raised concerns about reduced competition in the “accessible luxury” market (a category that includes brands like Coach and Michael Kors).

The FTC believes the merger could lead to higher prices and fewer choices for consumers.

As of now, the case is in court.

The FTC has filed a lawsuit to block the deal, and the outcome is TBD in a few days time.

However, recent developments have made things even more interesting.

A Supreme Court ruling earlier this year has potentially made it harder for the FTC to win its case, shifting the burden onto them to prove their claims more thoroughly.

This gives Tapestry and Capri a stronger chance of success…

Current estimates from legal experts suggest the odds of the takeover going through range between 50% and 70%, depending on how the court weighs the competition issues.

This means it’s far from a done deal, but the odds are certainly worth considering.

If the court sides with Tapestry and allows the acquisition to proceed, Capri’s stock could shoot up to $57 a nice 50% jump from its current price.

This boost would not only reflect the improved market positioning but also the synergies the combined companies could unlock, particularly in areas like global branding, product innovation, and operational efficiencies. We shall see…

For those looking to capitalize on “takeover arbitrage”, Capri could be an intriguing bet. While the risks are real, so is the potential reward, and it’s days away

As always, do your own research! I’ve looked into this quickly and put the downside at about 10-15%, vs the upside around 50%.

The stock was at $35 before it was announced in August 2023, and it’s $37 now, meaning, limited downside, and a LOT of upside potential.

This risk:reward is attractive.

I haven’t entered any positions yet, but I’m considering it.

This could be one of those rare opportunities where patience and a little legal luck pay off handsomely.

As always, happy hunting!