John D. Idol, chairman and chief executive officer of Michael Kors Holdings, told WWD, “We are creating a global luxury fashion group. Our focus is on international fashion luxury that are industry leaders.”
Idol noted that while “Michael Kors is the number one style and trend leader in the world from an American standpoint, Jimmy Choo, from a luxury footwear standpoint, is one of the leaders on a global basis.”
Idol also said combining the two brands, which have different international businesses, under one umbrella “helps us diversify from a brand and product standpoint, as well as geographically with greater exposure in Asia and Europe.”
Idol said the management team at Jimmy Choo has an “excellent plan to grow its business to $1 billion. There’s not going to be anything we’re adding in terms of categories. Growth will come from luxury footwear, which is one of the fastest growing categories in the luxury market. The luxury bag market is flat to up a point or two. The luxury footwear market is up mid-single digit. The luxury watch market is down. This – footwear – is a great category to be in.”
The two companies’ boards said early Tuesday they reached an agreement for a recommended cash acquisition by which the entire issued and to be issued ordinary share capital of Jimmy Choo will be acquired by JAG Acquisitions, a wholly owned subsidiary of Michael Kors.
Under the terms of the deal, each scheme shareholder will receive 2.30 pounds in cash for each Jimmy Choo share, valuing Jimmy Choo’s existing issued and to be issued ordinary share capital at approximately 896 million pounds.
The price of 2.30 pounds per Jimmy Choo share represents a premium of approximately 36.5 percent to Jimmy Choo’s share price of 1.69 pounds at the close of business on April 21, 2017, the last business day before the Jimmy Choo directors announced the commencement of the formal sale.
Following the announcement, shares in Jimmy Choo surged 17.1 percent to 2.28 pounds on the London Stock Exchange.
However, Kors stockholders were skeptical and sent shares of the firm down 4 percent to $33.53 in the opening minutes of trading on Wall Street. It is not unusual for shares of companies making acquisitions to fall, given the sudden outlay of funds and integration risks.
According to the statement, the acquisition implies an enterprise value multiple of approximately 17.5 times Jimmy Choo’s adjusted earnings before interest, taxes, depreciation and amortization for the 12 months ended December 31, 2016.
The Jimmy Choo directors said they intend unanimously to recommend Jimmy Choo shareholders’ vote in favor of the takeover. Assuming the deal goes through, Choo will be delisted from the London Stock Exchange.
Michael Kors said it believes it is the ideal partner for Jimmy Choo and is well-positioned to support the footwear brand’s continued growth. The company said it intends to apply the “experiences, infrastructure and capabilities that it has developed as a company over the course of its own worldwide growth as a luxury fashion brand to support the growth of Jimmy Choo through retail store openings and further development of its online presence.”
Kors intends to apply the “experiences, infrastructure and capabilities that it has developed over the course of its own worldwide growth as a luxury fashion brand to support the growth of Jimmy Choo through retail store openings and further development of its online presence.”
The company added that it is also planning an “expanded assortment of additional fashion product offerings.” Jimmy Choo, it said, will operate “as it does today,” under its existing management team of Pierre Denis, chief executive officer, and Sandra Choi, creative director, within the Michael Kors organization.
Kors’ Idol called Choo “an iconic brand with a rich history.”
He said the company “is a leader in setting fashion trends. Its innovative designs and exceptional craftsmanship resonate with trendsetters globally. We believe that Jimmy Choo is poised for meaningful growth in the future and we are committed to supporting the strong brand equity that Jimmy Choo has built over the last 20 years.”
Michael Kors, honorary chairman and chief creative officer, said: “We admire the glamorous style and trendsetting nature of Jimmy Choo designs. We look forward to welcoming Jimmy Choo to our luxury group.”
Michael Kors said the cash consideration payable by Michael Kors Bidco to the scheme shareholders will be funded from the proceeds of a 364-day term loan facility provided pursuant to the credit agreement dated July 25, entered into by and among Michael Kors and certain other members of the Michael Kors Group as loan parties, the lenders party thereto and J.P. Morgan Chase Bank NA, as administrative agent.
In a flash report following the announcement, Luca Solca, managing director at Exane BNP Paribas said “again, Michael Kors follows the path of Coach — and again on steroids.” He was referring to Coach’s acquisition earlier this year of Kate Spade & Co. for $2.4 billion in cash.
“After a meteoric rise and spectacular crash, it is now the time to recycle cash into other brands, with higher residual equity. And again, it is shoes the accessible American brands zero in on. It is fortunate for JAB Luxury and JC shareholders that such a bidder is there. The decision to put assets for sale looked like a very long shot, but it is seemingly paying off,” added Solca.
Although Kors was tipped early as a potential bidder for Choo, many believed that any acquisitions would be put on ice as the company surmounted its own internal challenges.
The company’s fourth-quarter loss for the period ended April 1 was $26.8 million, or 17 cents a diluted share. That’s against net income of $177 million, or 98 cents, a year ago.
At the time, the management team acknowledged that its troubles were far deeper than just needing some quick fixes, such as pulling back on promotions and reducing its presence in the department store channel.
Calling fiscal 2017 a “difficult and disappointing year” against the backdrop of a challenging retail environment, Idol said the company had to take “steps to accelerate the level of luxury fashion innovation and our accessories assortment.”
He added that the new initiative also has “long-term strategic plans to better engage and excite consumers.” The Kors handbag business has been uneven while the global accessories market for handbags and small leather goods is “roughly flat,” Idol said.
Overall revenues for the quarter were down 11.2 percent to $1.06 billion, which included an 11.3 percent slide in net sales to $1.03 billion and a comparable-store sales decline of 14.1 percent.
In late April, JAB Holding, parent of Jimmy Choo, Bally and Belstaff, announced it was exiting the luxury business and was seeking buyers for both Choo and Bally. JAB’s aim is to focus on consumer goods such as coffee and cosmetics from its Coty Inc. division.
In 2016, Jimmy Choo revenue was 364 million pounds, a 14.5 percent increase year-over-year at reported exchange rates, and a 2 percent rise at constant ones.
Although the company shouldered costs related to store expansion and renovations in the year, Denis was bullish about 2017, and said Asia and men’s wear would continue to be growth drivers, with Japan, in particular, showing an appetite for men’s wear.