Michael Kors in £896m deal to buy Jimmy Choo, plans store and category expansion

It lost Kate Spade to Coach but now it looks like Michael Kors has won another prize it really wanted. It has reached a deal to buy its smaller luxury segment peer Jimmy Choo for almost £900 million, well above the £800 million that was expected.


Jimmy Choo

The two companies said Tuesday that they’ve reached agreement on the terms of a recommended cash acquisition by which the “entire share capital of Choo will be acquired by Kors subsidiary JAG Acquisitions (UK) Limited.”

Michael Kors said it believes it is “the ideal partner for Jimmy Choo and is well positioned to support [its] continued growth.” 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.”

What that means in practice is, unsurprisingly, more store openings. Jimmy Choo lags many of its peers in Asia, for instance, a factor that protected it during the Asian downturn and also offers many opportunities today.

The company is also promising “further development of its online presence”, and perhaps most interestingly, “an expanded assortment of additional fashion product offerings.”

It would be interesting to know what that will involve. The company that was founded as a women’s shoe brand has already moved into bags and men’s shoes (its fastest-growing segment at present). Will we see clothing collections too? Unfortunately, for now, nobody is saying.

What they are saying is that Jimmy Choo will operate as it does today under its existing management team of Pierre Denis, Sandra Choi and Jonathan Sinclair within the Michael Kors organisation. That’s no surprise given that they’ve overseen an 11% compound annual growth rate in the past five years.

So what are the details of the deal? The sum payable by Kors will be funded from the proceeds of a 364-day term loan facility. Shareholders will get 230p in cash for each Jimmy Choo share, a good deal considering that they were trading at a low of 95p at one point last year and could still be snapped up for less than 130p exactly a year ago. The shares closed at 168.5p the day before the firm announced it was for sale back in April, but have been trading just under or just over 200p in recent weeks.


Jimmy Choo

That values the firm at £896 million, tantalisingly close to the £1 billion marker, a level that Michael Kors must be hoping Jimmy Choo will reach very soon under its control. Kors certainly sees it as having huge potential, as it’s paying roughly 17.5 times last year’s adjusted profit (on an Ebitda basis), which is a high multiple.

The big question now has to be: is it a done deal? Well, until everyone has signed on the dotted line, of course not. Kors said Tuesday it has no intention of raising its offer unless “there is an announcement on or after the date of this announcement of an offer or possible offer for Jimmy Choo by a third party offeror or potential offeror.”

So if any deep-pocketed companies are waiting in the wings, there’s still a chance that the situation could change, although that looks unlikely (but not impossible) at present.

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