Sabrina Escobar

Italian luxury conglomerate Prada is buying Versace from Capri Holdings for $1.38 billion, the companies said Thursday -- a little over half of what Capri paid to acquire it in 2018.

The transaction is expected to close in the second half of 2025.

Capri stock plunged 11% to $14.53 Thursday morning. Prada stock, which trades on the Hong Kong stock exchange, closed 5% higher before the deal was announced. U.S.-listed shares were up 1%.

The news isn't entirely a surprise -- there had been reports that Prada was making a bid on Versace since March. At the time, Capri shares rallied at the prospect that the sale could enable Capri to focus on improving its core Michael Kors brand, while adding another heritage Italian brand to Prada's portfolio.

The stock's pullback now that the details have been unveiled suggest investors were hoping for a better deal.

Capri closed the acquisition of Versace for about $2.1 billion as 2018 ended, a few days before Capri itself rebranded from Michael Kors Holdings. The company had bought Jimmy Choo about a year earlier. The acquisitions and name change were an attempt to turn Michael Kors into a bigger luxury conglomerate -- a bet that hasn't entirely paid off.

Shares of Capri have largely underperformed both the broader market and the retail sector since Jan. 2, 2019, when the company officially changed its name, down 63% compared with the S&P 500's 100% gain and the SPDR S&P Retail exchange-traded fund's 54% increase.

A big problem has been lackluster performance from the Michael Kors brand, which despite the name change still accounts for nearly 70% of Capri's total revenue. Michael Kors sales fell 9.2% in fiscal 2024, following a 1.8% drop the prior year.

Capri had put off implementing an aggressive turnaround plan as it had hoped to sell itself to Coach owner Tapestry for $8.5 billion. The deal, announced in 2023, was scrapped last year after the Federal Trade Commission sued to block it, arguing the merger would curb competition for so-called accessible luxury handbags.

Selling Versace may reflect Capri's recognition that management needs to focus on revitalizing the Michael Kors brand. Among the benefits to the transaction that Capri lists are a stronger balance sheet and flexibility to invest in Michael Kors, as well as future share repurchases and debt reduction, the company said.

"This transaction reflects our commitment to increase shareholder value, strengthen our balance sheet and power the future growth of Michael Kors and Jimmy Choo," said Capri CEO John Idol in a press release Thursday.

Earlier in April, Capri announced Chief Financial Officer and Chief Operating Officer Tom Edwards was leaving the company in June to take on the same roles at Macy's. The departure came "somewhat as a surprise" given Edwards' history at the company, wrote Dana Telsey, CEO of Telsey Advisory Group, at the time.

"His departure comes at a precarious time, in our view, as CPRI embarks on a turnaround after more than a year in flux that ended in the failed acquisition attempt of CPRI by TPR," she wrote. "Moreover, leadership transitions always carry an element of risk."

The deal seems like more of a win for Prada, gaining an iconic Italian luxury brand to its portfolio to better compete with French rivals LVMH Louis Vuitton Moët Hennessy and Kering. Versace was founded in 1978 by designer Gianni Versace, who became known for his splashy ensembles that bordered on the risqué.

"With its highly recognizable aesthetic, the brand constitutes a strongly complementary addition to the Prada Group's portfolio and displays significant untapped growth potential leveraging multiple value creation levers," Prada said in a press release Thursday.

Prada owns the eponymous brand, along with Miu Miu, Church's, Car Shoe, Marchesi 1824, and Luna Rossa.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

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April 10, 2025 11:04 ET (15:04 GMT)

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