Michael Kors Holdings Ltd. Friday priced Silas Chou and Lawrence Stroll’s remaining 11.6 million shares at $76.75 each — and investors promptly pulled the stock down below offering price.
Kors said on Thursday that Sportswear Holdings Ltd., indirectly owned by Stroll and members of Chou’s family, would sell the stock, constituting 5.7 percent of the shares outstanding, in a secondary public offering. The two investors, who once held half of its equity, will resign their seats on the Kors board, reducing its membership to seven, all but two of whom — chairman and chief executive officer John Idol and honorary chairman and chief creative officer Michael Kors — are deemed to be independent.
Shares Friday fell $3.58, or 4.5 percent, to $76.39. That’s down 24.4 percent from their 52-week high of $101.04, set on Feb. 25, and 0.8 percent below their closing price on Aug. 4. The stock fell 5.9 percent on the latter date after concerns mounted about the outlook for the company’s margins even as it reported a 50.2 percent increase in first-quarter net income to go with a 43.4 percent gain in sales.
The sale of Stroll’s and Chou’s stakes is projected to generate $892.6 million which, excluding $15.6 million in fees to underwriter J.P. Morgan, would result in net proceeds of $877 million to the sellers. It is expected to close on or about Sept. 10.
The two purchased the company in the Nineties for a reported $100 million, and sold about $519 million worth of stock at the time of the initial public offering in December 2011. They also received an undisclosed portion of the proceeds from a private sale for about $500 million prior to the IPO. Since then, their firm has sold a 7 percent stake at $47 a share in March 2012, a 9 percent stake in September 2012 at $53 and about a 10 percent stake at $61 in February 2013, according to Wells Fargo Securities analyst Paul Lejuez.
“Given that the stock is currently near $80, the shares have performed well over the time period that SHL has sold shares, so we do not think this is a negative indicator of the near- or medium-term state of the business,” he wrote in a note to clients. “Longer term; however, we do believe that SHL not wanting to retain at least a portion of the company may indicate something about their view of the company’s longer-term prospects.” Although concerned about the potential for overdistribution and, with sales productivity at about $2,000 a square foot, difficult sales comparisons, he said that, overall, “the risk reward is balanced.”
The analyst also believes that the sale might simplify matters if and when the company looks to buy back the licensed rights for Greater China currently held by Far East Holdings, which is owned by SHL, Kors and Idol. This way, he said, “there are fewer conflicts of interest and it seems less likely the price paid will be biased to be too high.”