Michael Kors makes a high-end fashion statement with Versace 2.2 Billion Dollars

MILAN (Reuters) – Michael Kors (KORS.N) agreed to buy luxury designer Versace Tuesday for 1.83 billion euros, including debt, while the US fashion group is positioning itself to face larger European competitors.

Michael Kors, whose namesake label is best known for his leather handbags, did not hide his ambition to expand his customer base and portfolio of high-end brands by buying last year Jimmy Choo, a manufacturer British stiletto heels.

The bet on Versace comes as the US group seeks to refresh the image of the brand Michael Kors and recover some of its pricing power. The decision also aims to revive Versace, which found a net profit last year.

This is the latest in a series of foreign acquisitions of Italian luxury brands in recent years.

The Versace Milanese company, known for its bold designs and logo Medusa, was one of the Italian family brands considered attractive targets at a time when the luxury industry was heavily sought after by China.

"With the acquisition of Versace, we have created one of the world's leading fashion and luxury groups," said John Idol, President and Chief Executive Officer of Michael Kors Holdings.

Michael Kors has agreed to buy all the outstanding shares of Versace for a total enterprise value of 1.83 billion euros ($ 2.2 billion) to finance in cash, debt and equity in Michael Kors Holding Ltd, which will be renamed Capri Holdings Ltd.

Idol subsequently ruled out any new acquisitions by Capri, which will focus on developing the three brands.

The talks began before the summer, when Versace was on the radar of several investors, while Blackstone intended to leave the group, said a source close to the deal.

The US private equity firm, which bought 20% of Versace for 210 million euros in 2014, will realize a capital gain of 156 million euros by leaving its investment, according to Reuters calculations.

The Versace family, which owns 80% of the Milan-based fashion house, will receive 150 million euros from the price of buying Capri shares.

"We believe that being part of this group is essential to Versace's long-term success. My passion has never been so strong, "said Donatella Versace, the sister of her late founder, Artistic Director and Vice President.

Versace CEO Jonathan Akeroyd will remain at the helm of the company, while Donatella Versace will continue to "lead the creative vision of the company," added Idol.

The transaction is expected to close in the fourth quarter, subject to regulatory approvals. JPMorgan and Barclays were among the counselors.

GREAT MODE

Budding conglomerates like Michael Kors have tried to enter an industry dominated by European players such as Louis Vuitton, owner of LVMH (LVMH.PA) and Kering (PRTP.PA).

"The Versace brand has strong untapped global growth potential in all regions, particularly in Asia and North America," Cowen analysts said in a note.

Idol said its group plans to increase Versace's worldwide sales to $ 2 billion globally, reach profit margins in the "younger age range" and open a hundred new stores . It also plans to increase the share of accessories and footwear to 60% of sales, compared to 35% for sales.

"Versace is terribly underdeveloped. That will change with Capri's resources behind them, "added Idol, in a call to analysts, explaining that the group's track line would remain the main" target ".

He admitted that the scope of the mark was greater than that of his clientele and that "we must convert these measures".

Versace does not disclose financial data, but filed documents stating that sales in 2017 amounted to 668 million euros and earnings before interest, taxes, depreciation and amortization (EBITDA) to 45 million euros. ; euro.

"(In luxury), Americans are the opposite of Italians: although they are not excellent in their products, they are (excellent) in their approach to the market. The only risk is that they do not give the product their value, "said Giuliano Noci, professor at the Politecnico School of Management in Milan.

Shares of Michael Kors were trading at 1.455 GMT up 1.4%, after falling more than 8% on Monday after the announcement of the deal.

Versace is the last name Made-in-Italy to be taken by a foreign company. Fendi, a famous Rome-based jeweler, the famous jeweler Bulgari and cashmere maker Loro Piana were all bought by LVMH. Gucci is Kering's biggest brand, which also includes Bottega Veneta and the Brioni men's brand.

Social media supporters said the red carpet favorite had lost its appeal, while Italian politicians cried the loss of another cherished brand of the country.

"I am a liberal, but I am tired of seeing the best Italian brands of fashion, food and technology bought by foreigners," Italian Interior Minister Matteo Salvini said.

($ 1 = 0.8495 euros)