At last… Prada and Capri finally reached an agreement for the sale of Versace last week. It was in the pipe for months. Rumoured price was around 1.6bn$. Well, the tariffs maelstrom we’re still in took its share of the deal in the form of a lower price. Prada will pay 1.375bn$ to Capri, -35% vs what Capri paid in 2018. What does this mean for Capri’s value ? What should we expect next ?

Well, as I said when the lower price rumour came in, it would be hard to see Capri worth more than 30$ a share.

Let’s redo the math. For Versace I had it at 1.6bn$. Jimmy Choo, I expected 700m$. For MK, I was at 3.0bn$. That led to a value per share of 35$. NB : While I am presenting a single value per share for simplicity, I prefer to think about valuation as a range of potential values. I may adopt this approach going forward.

I wrote that on March 14th. Versace’s value has since been lowered. From 1.6bn$ to 1.375bn$, it’s a 2$ per share impact. So from 35$ we go to 33$. Then we should acknowledge that Jimmy Choo and MK’s valuations have also taken a hit.

For Jimmy Choo, I expect a value of 500-600m$. It means -60% vs Capri’s purchase price in 2017. I expect c1$ of impact from lowered price. From 33$ to 32$ then.

The tricky part is for Michael Kors. A significant portion of its production is manufactured in Asia, whereas Versace and Jimmy Choo primarily manufacture in Italy. My initial value for Kors was at 3.0bn$. I took conservative assumptions to derive it, assuming both muted growth and margin. Assuming a 15% impact on that initial valuation (similar to Versace’s actual vs rumoured transaction price), MK is worth 2.5bn$. It drops to 2.25bn$ with a 25% haircut. So overall, I arrive at a value of 25-28$ per share for Capri. Still way above today’s 14$ trading price.

What will happen next ? My opinion is that Capri will sell Jimmy Choo soon too. I was slightly relieved that Prada didn’t acquire it too : I guess John Idol was ready to make a good discount for the bundle.

Jimmy Choo remains a reputable brand globally though I believe Louboutin holds a stronger market position, and Jimmy Choo’s brand image has arguably been impacted in the last decade. Despite this, Jimmy Choo retains its artisanal image, its Italian-made products, and its overall quality. Marrying Versace, Jimmy Choo, and MK was not a good recipe. Combining only Jimmy Choo and Michael Kors is unlikely to yield better results. I think there are multiple suitors for the brand, and I think Exor is still interested. We’ll see quickly I think.

I hardly see a rerating of the stock before that happens, except of course if Trump reverses course and abolishes tariffs. Versace’s release mentioned “business investments, debt reduction, future share repurchases.” We’ll have more clarity during next quarter’s results on what’s the plan with the cash.

At current prices, my opinion is that Capri is cheap. I keep my position and expect further action soon.