Following in the footsteps of rival Coach (NYSE: COH), upscale retailer Michael Kors (NYSE: KORS) made an acquisition to try and bolster fleeting sales, saying overnight that it is buying Jimmy Choo, the London-listed maker of luxury shoes. For years, brick-and-mortar retailers have been losing market to e-commerce businesses like Amazon.com (NASDAQ: AMZN), leaving them looking to M&A actions to shore up sales streams.
KORS is paying $1.2 billion for Jimmy Choo, a company with celebrity customers and roots going back to the 1990’s when the eponymous founder was custom making shoes from a shop on the east side of London. Since, the company has expanded into a complete line of luxury handbags and accessories as well.
Including debt, the deal has an enterprise value of approximately $1.35 billion.
The 230 pence per share price tag for CHOO.L is a 36.5% premium to the price of the stock in April when the billionaire Reimann family’s JAB Holding Co. said it was putting the brand up for sale to focus on its food and beverage operations. JAB is also shopping Bally International, a Switzerland-based premier shoe and accessories company.
In May, Coach agreed to spend $2.4 billion buy high-end pursemaker rival Kate Spade. At the time, Coach said Kate Spade leadership would remain intact and that there were no intentions to take away from its “brand independence.”
Michael Kors is using the same playbook as part of a broader strategy to fight for relevance at a time when millennials aren’t as concerned with brand identification as their elders. The plan is not to remove management or sell Jimmy Choo products in Michael Kors stores, but to open some new Jimmy Choo locations and work on building their online presence. Maintaining the independence is being mindful of possible concerns of market saturation against the backdrop of an intensely competitive and ever-evolving market.
KORS management intends to build a luxury group, with more acquisitions to come to complement brands already under their umbrella.
Investors aren’t reacting favorably to the acquisition news. Shares of KORS gapped lower at the opening bell and are down 95 cents, or 2.7%, at $33.96 minutes into the trading session. The stock is hovering narrowly over the $32.38 printed on May 31 that was the lowest price for the stock since shortly after its IPO in December 2011.
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