PRIVATE & CONFIDENTIAL Project Catwalk Merger Considerations
March 2019 Team Profile Team of Dedicated Individuals with Significant Strategic Advisory Experience
Kyle Costanzo Emilie Granger Tejas Saggi Eric Van Hees
+1 609-947-8339 +1 438-880-8951 +1 438-926-4428 +1 905-601-1227
McGill University McGill University McGill University McGill University B.Comm B.Comm B.Comm B.Comm
Born and raised in Princeton New Emilie Granger was born and Tejas was born in India and Eric was born and raised in Jersey, Kyle grew interested in raised in Montreal, Canada. raised in the suburbs of Oakville, Ontario. His interest in finance after interning at an Growing up with a brother in Vancouver, BC. At a young age, finance originates from his energy brokerage firm after high Investment Banking, Emilie he realized he had a knack for involvement with his high school school. When he’s not working always knew she wanted to Excel shortcuts and so the investment club. His time at on stock pitches for HIM’s undertake a career in Finance. At natural rite of passage was to McGill has been filled with Consumers sector, Kyle serves McGill, Emilie is an ambassador enter finance. He now spends extracurriculars including being a as the co-president of JED for Women in Capital Markets. the majority of his days member of the Varsity Lacrosse Consulting, McGill’s student-run Outside of McGill, Emilie enjoys rethinking this decision. As a true team and the McGill Investment consulting firm. In his time playing soccer and countryside financier, he recently picked up Club. Outside of school, Eric can outside of studies, Kyle goes hiking. She also competes in squash. Outside of finance, Tejas be found playing guitar or skiing, maps out Montréal’s sprint triathlons. enjoys playing basketball and socializing with friends. coffee scene, and plays poker traveling. tournaments.
Years of Experience Advising Companies Undertaking Strategic Alternatives in Tandem with Expertise in Retail Prove That We Are Best-Suited to Advise Tapestry on its Potential Merger with Capri Holdings
Strictly Private & Confidential Page 2 Executive Summary Tapestry Should Merge with Capri Holdings to Create the First True US-Based Luxury Conglomerate
Rationale For Tapestry Merger With Capri Holdings: Strategic Summary − Increase profitability by moving deeper into luxury Merger will Create First True − Lower business risk by diversifying product lines US-Based Luxury Retail − Immense revenue and cost synergy potential Conglomerate − Potential for operational efficiencies through business re-organization − Attractive Valuation
Premium: $59 purchase price represents a 30% premium to current share price and a Financial Summary 11.0x TEV / NTM EBITDA Realistic and reasonable offer for Capri Holdings Transaction Financing: Funded with 60% equity and 40% cash ($3.6bn of newly issued debt), pro-forma Debt / 2020E EBITDA of 2.0x (in line with comps)
Risks Mitigant 1. Market has punished Capri recently due to 1. Merger solves Capri’s inventory issue, Considerations Summary their inventory issues (-60% from peak) which is the reason stock has fallen Risks and mitigants and 2. Organizational structure overhaul 2. Track record of success of this org strategic alternatives necessary to integrate Capri with TPR (i.e. structure with LVMH. Extract value by must give all brands autonomy) separating affordable luxury and luxury 3. Antitrust concerns 3. No scrutiny for similar recent mergers
Purchase of Luxury Conglomerate like Capri Holdings will Generate Significant Synergies, and Position the Combined Entity to Solidify its Leading Position in the United States, and Grow its Market Share in Growth Markets Abroad
Strictly Private & Confidential Page 3 The Tapestry Story: Strategic Objectives The Current Situation
Foundation Fright Formation Follow-On
Increased M&A strategy to gain Leverage Tapestry is a North competition from Low global market scale in North America competencies of American Luxury other North share for luxury goods and diversify product both companies to Retailer American Luxury lines exploit growth areas Retailers
$120
$100 • Diversification: Successful Men’s and apparel segments $80 fill gaps in Tapestry’s product line • Luxury: Capri offers luxury $60 brands like Versace that can improve profitability at Tapestry $40 • Inefficiency Reduction: Potential to re-organize Capri holdings to reduce $20 inefficiencies in inventory management $0 • China Access: China Mar 14 Mar 15 Mar 16 Mar 17 Mar 18 Mar 19 opportunity is largely untapped S&P 500 Tapestry Capri Holdings
Tapestry Is At a Cross Roads With An Interesting Opportunity to Pursue Capri Holdings for A Merger
Strictly Private & Confidential Page 4 Competitive Landscape Tapestry Competes in the Affordable Luxury and Luxury Market Segments
Luxury, High-End, Genre High-End Luxury Luxury Upscale and Upscale Accessories, Modern luxury and Fully diversified Fully diversified Premium lifestyle Core Product Focus footwear, and lifestyle luxury products luxury products products apparel
Key Brands
North America (19%) North America (23%) North America (56%) North America (59%) North America (64%) Europe (35%) Europe (28%) Europe (40%) Geography Asia (24%) Europe (23%) Asia (40%) Asia (37%) Asia (3%) Other (17%) Asia (13%) Other (6%) Other (12%) Other (1%)
Headquarters New York New York Paris Paris New York
Bought remaining Recently acquired Recently acquired Sold Puma back to Closed flagship store Recent Events interest in Dior Kate Spade Versace original shareholders on Fifth Avenue brand
% Luxury Goods Market, 2017 0.01% 0.01% 4.1% 10.6% NA
Tapestry and Capri Collectively Are Currently Relatively Small in the Global Luxury Goods Market and Therefore Need to Take Strategic Actions to Gain Market Share
Strictly Private & Confidential Page 5 Overview of Strategic Alternatives Available to Tapestry Tapestry Should Merge With Capri Holdings
Low Riskiness Improved Growth Increase Likelihood Company Overview of Prospects Profitability of Approvals Implementation
Make no acquisition and continue price battles with Status Quo – Make no Capri Acquisitions Capri margin remain below potential, while debt levels remain relatively low
Gain scale in US, and fill gaps in menswear and apparel Acquire Ralph Lauren Low likelihood of successful China entry Lower luxury than Tapestry hurts TPR brand image
While enabling Tapestry to gain scale and luxury, it is Acquire Select Capri unlikely that Capri would give all market power in the Holdings Assets (i.e. US to Tapestry, and sell Versace which they recently Versace) bought
Reduce price competition in North America to increase margins Merge With Capri Significant cost and revenue synergies Holdings Better compete with LVMH and Kering
Affordable Luxury Luxury Fashion Global exposure – attractive to growing Asian market Experience, exclusivity, and logo trend
Merging With Capri Will Create the First North American Retail Conglomerate in Centuries, and Will Enable Significant International Growth Opportunities and Domestic Margin Increases
Strictly Private & Confidential Page 6 Summary of Rationale for Merger with Capri Holdings Merger Will Create The First Ever North-American Luxury Conglomerate, Competing with the Likes of LVMH
1 Higher Profitability of Increased Margins: Conglomerates allow for economies of scale, increasing margins Conglomerates in Luxury Increased Growth Prospects: Conglomerates can transfer competencies to other Space portfolio brands (ex. Leveraging presence of brand in China to expand other brands)
2 Diversify Product and Fill Product Gaps: Diversify into other product segments such as clothing and menswear Segment Mix, Lowering Enter Higher End Segments: Versace and Jimmy Choo appeal to higher end customers Business Risk helping the company partly alleviate risk of retail slowdown
3 Revenue: Geographic expansion, eliminate need to cut prices (“flash sales”), leverage Significant Revenue and distribution relationships, build centralized e-commerce platform Cost Synergy Potential Cost: Economies of scale, shared cost structure, increased power over suppliers
4 Potential for Operational Reorganize Capri Organizational Structure: Capri’s portfolio is highly centralized which Efficiencies Through lowers responsiveness of brands to market trends; Tapestry’s structure of increased Cultural Reorganization agency amongst brands would increase Capri’s operational efficiency
5 Attractive Valuation Due Buy Low: Capri down 60% from 2014 peak, creating a unique opportunity to buy at a low to Recent Market Capri Cashes Premium: Capri shareholders receive a premium at a time when Capri is Performance of Capri performing poorly
By Merging with Capri Holdings, Tapestry Can Achieve A Valuation Uplift Through Increased Profitability, Significant Synergies, and Added Operational Efficiencies
Strictly Private & Confidential Page 7 Rationale #1: Higher Profitability of Conglomerates in Luxury Space Case Studies of LVMH, Kering and Inditex Demonstrate Benefits of Being A Conglomerate
EBITDA Margins of Companies in Luxury Space Increased Profitability Results in Conglomerate Premium
35% Conglomerates Conglomerates
13.6x 30% 13.4x
11.2x 25% 10.8x 10.5x 10.6x
20%
15%
10% Tapestry Burberry Polo LVMH Kering Tapestry Burberry Polo LVMH Kering Inditex 2016 2017 2018 EV / LTM EBITDA Tapestry Will Achieve Significant Operational Efficiencies That Will Boost Margins and Create Value for Shareholders Through Multiple Expansion By Merging with Capri
Strictly Private & Confidential Page 8 Rationale #2: Diversify Product and Segment Mix, Lowering Risk Merger with Capri Will Create Diversified Mix Both in Terms of Products and Customer Segments
Merger Yields More Diversified Product Mix Segment Mix Post-Merger Shifts Towards Luxury
Merger will almost double percentage of revenue 3% coming from higher-margin Luxury segment 11% 4% 10% 6% 6% 11% 11% 14%
20% 18%
94% 89%
51% 52%
Pre-Merger Post-Merger
Handbags Accessories Men's Pre-Merger Post-Merger Footwear Clothing Other Affordable Luxury Luxury
Merger Will Lower Business Risk of Tapestry Due to a More Diversified Product Mix and Likely Increase Margins Due to Mix Shift Towards Luxury Market Segment
Strictly Private & Confidential Page 9 Rationale #3: Significant Revenue and Cost Synergy Potential Revenue Synergies Achieved From Pricing and Expansion Tailwinds
Geographic Expansion - China E-commerce Penetration
Chinese consumers are likely to make up at least 45% of The Hard Reality of Digital Everything the market in 2025 (from 32% in 2018), and they will make Digital Influence (2017) half of their luxury purchases at home Researched online, Store Only Online Exposure to China purchased offline 15% Leverage Coach expertise 42% 41% 17% exposure to top tier cities 8% Channel Distribution 6% digital investments
9% 11% 12% extensive marketing 14% 15% 17%
Michael Kors Coach Industry Average
91% 89% 88% 86% 85% 83% Pricing War
Tapestry’s share price has soared in recent years as the company 2017 2018 2019E 2020E 2021E 2022E worked to decrease its reliance on big promotions, step up the Offline Online quality of its handbags, and increased sales price Tapestry can keep customers at the center of their strategy by pressing forward with digital initiatives and quickly and efficiently Eliminate price wars and increase pricing on all affordable luxury scaling Coach and Kate Spade’s omni-channel presence by brands (Kate Spade, Coach, Michael Kors) leveraging Michael Kors expertise in e-commerce
Transfer Of Know-How Will Allow Both Brands To Extend Their Existing Product Offering, And Geographic Footprint
Strictly Private & Confidential Page 10 Rationale #3: Significant Revenue and Cost Synergy Potential Cost Synergies Achieved From Centralized Support Functions Operated As Shared Centralized Services
Taxiway to Margin Expansion How Luxury Groups Create Added Value?
Performance by luxury fashion product sector 2017 Value Function Synergy 13% Creation 10% 11% 8% 8% 8% 6% 6% 7% 6% Manufacturing
Purchasing Productive Apparel and Bags and Cosmetics and Jewellery and Multiple luxury Functions footwear accessories fragrances watches goods Sourcing Profit margin Return on assets R&D 1. Shared marketing costs 3. Design costs 2. Overhead costs 4. Production efficiencies Distribution Bargaining Power at Malls and Flagship Locations Marketing Supportive Functions Monobrand Store Real Estate 9% Specialty Store Department Store Back Office 13% 32% Off-Price Store Online Store Know-How Best Practices 21% With more luxury brands in luxury malls and with 25% more flagship locations, Tapestry can benefit from bargaining power with real estate third parties Efficiency Productivity
Integrating Production With That Of Capri Could Potentially Damage Its Integrity In The Minds Of Its Customers. However, We Found That, Depending On The Product Category, Numerous Domains Can Generate Efficiency Synergies
Strictly Private & Confidential Page 11 Rationale #4: Generate Efficiencies Through Cultural Reorganization Capri’s Organizational Structure Reveals Inefficiencies That Could Be Alleviated Through Reorganization
Capri Holdings Current Organizational Structure – Centralized
Michael Kors NY Headquarters CCO
John Idol Thomas Edward Cathy Robinson CEO CFO COO …
Tapestry Organizational Structure – Siloed Victor Luis NY Headquarters CEO
Joshua Schulman Anna Bakst Eraldo Poletto Michael Braine Todd Kahn Andrea Shaw CEO - Coach CEO – Kate Spade CEO – Stuart Weitzman CIO CLO CFO … … …
What LVMH and Kering’s Organizational Structures Allow
A Retain strategic direction within each division
B Develop identifiable elements that make up the brand perception– increase ability to cross-sell portfolio brands
Strictly Private & Confidential Page 12 Rationale #4: Generate Efficiencies Through Cultural Reorganization Through Cultural Reorganization, We Can Create A Structure That Is In-Line With European Conglomerates
Merged Organizational Structure – Siloed and Centralized
Victor Luis NY Headquarters CEO
Affordable Luxury Luxury CEO CEO
Kate Spade Stewart Weitzman … … President President
Versace Michael Kors … … President President
MK Collection … Coach … President President Jimmy Choo … President
Capri’s Current Organizational Structure Creates Inefficiencies Related to Inventory Management and Marketing; By Adopting Tapestry’s Organizational Structure of Brand Autonomy, Capri Can Solve Many of the Reasons Why Their Stock is Discounted
Strictly Private & Confidential Page 13 Rationale #5: Attractive Time To Merge Capri Is Trading At A Low Creating A Unique Opportunity to Buy A Portfolio of Leading Luxury Brands for Cheap
Capri Has An Attractive Valuation After Poor Performance Low Debt and High P/E Give Tapestry Capacity to Acquire
Capacity to Add Debt $120 1 At 0.3x Debt to EBITDA and only a 3% Net Debt/EV, Tapestry has plenty of capacity to use debt to fund $100 acquisitions 0.3x Net Debt/EBITDA $80 3.0% Net Debt/Enterprise Value
$60 2 Ample Cash Balance
Tapestry would be able to acquire select brands to add to their portfolio for under $1.2B $40
$1.2B Cash Balance $20 3 Equity Consideration Still Accretive Due to High P/E
$0 Relative to direct peers, Tapestry has a higher P/E Mar 14 Mar 15 Mar 16 Mar 17 Mar 18 Mar 19 14.4x P/E Ratio vs. 10.6x average for American Luxury Conglomerates S&P 500 Capri Holdings
Tapestry Can Benefit From Capri’s Core Competencies and Add Unique Value to Extract Returns
Strictly Private & Confidential Page 14 Capri Holdings Valuation Summary Blended Valuation Results in a Roughly 28% Premium to Current Share Price
Current Price: Target Price: $46.00 $59.00
Informational Range
Comparable Companies Analysis
Intrinsic Valuation
Capri Holdings Future Growth Is Driven by Versace and Jimmy Choo, With a Slight Margin Expansion From Prior Acquisition Integration
Strictly Private & Confidential Page 15 Merger Model 1.36 Share Exchange and $13.31 Cash Resulting in 30% Premium and $59 of Shareholder Value (11x EBITDA)
Key Merger Assumptions
Price Considerations 30% premium provides Capri shareholders with an attractive price that is in-line with Attractive price for Capri intrinsic value and competitive based on precedents. Our base case results in a 1.36 share Shareholders exchange and $13.31 per Capri shareholder, resulting in a total of $59.22 of value.
Financing Considerations A higher equity component, despite being more expensive, allows flexibility for pro-forma Higher equity component, while entity to pursue growth avenues and entices major shareholders to vote in favour of merger. maintaining accretion Attractive upside for Capri shareholders from long term synergy realization.
Synergy Considerations The pro-forma company will realize revenue, expense and cultural synergies. Despite Considerable upside from conservative estimates, we still forecast considerable accretion. Conservative ramp up until multi-channel growth avenues 2023.
Merger Sensitivity Analysis
2021E EPS Accretion 2021E EPS Accretion
Premium Paid Premium Paid ### 10.0% 20.0% 30.0% 40.0% 50.0% 45.3% 10.0% 20.0% 30.0% 40.0% 50.0% 40% 48% 43% 38% 34% 29% High 49% 45% 41% 38% 34% 50% 40% 36% 33% 29% 24% Synergies Medium 31% 28% 24% 21% 18% % Equity 60% 31% 28% 24% 21% 18% Low 13% 10% 7% 5% 2% 70% 24% 20% 17% 14% 11% 80% 18% 14% 11% 7% 4%
Even With An Above Market Premium and Conservative Synergy Estimates, The Deal Is Still EPS Accretive and Benefits Shareholders. Base Case Transaction Structure Is 1.36 Exchange Ratio and $13.31 Cash Funded ~80% with External Debt.
Strictly Private & Confidential Page 16 Major Shareholder Considerations Significant Focus Should Be Placed On Institutional Investors And Michael Kors
Tapestry Major Shareholders Capri Holdings Major Shareholders
Other Other 11.3% 10.3%
6.9% 10.0% 6.5%
4.3% 4.3%
62.7% 2.9% 66.7% Michael Kors
Michael Kors Likely Holds Significant Clout In Boardroom And Is The One Significant Individual Shareholder As The Other Major Shareholders Are Likely Passive Investors That Will Vote According to Proxy Service Recommendations
Strictly Private & Confidential Page 17 Michael Kors Expected Voting Direction Multi-Pronged Strategy of Equity Consideration and Board Seat Provides Mr. Kors with Considerable Influence
Illustrative Mr. Kors’ Ownership Comparison
2.90%
1.14%
Before After
Mr. Kors’ Expected Vote
Board Seat Equity Consideration Fiduciary Duty
Expected to Vote in Favour
Michael Kors Will Have Limited Arguments Against The Merger Of The Two Companies And With Careful Consideration He Will Not Be A Hindrance To A Smooth Transaction
Strictly Private & Confidential Page 18 Merger Considerations and Mitigants Relatively Limited Downside With Capri Merger Given Strong Merger Rationale
Merger Considerations Mitigants
A• Luxury retailers being punished for Capri’s A• Implementation of new organizational inventory management practices which may structure and Tapestry expertise will fix hurt Tapestry’s brand image inefficiencies and eliminate discount
B Cultural risk as Capri is re-structured to B The focused management model has a match Tapestry’s organizational structure proven track-record of success in Luxury Retail
C Auction competition driving up price and negatively affecting Tapestry shareholders C LVMHs recent acquisition spree will likely leave them out of process + Tapestry can offer autonomy to MK unlikely LVMH / Kering D Potential cannibalization of revenues between Michael Kors and Kate Spade D Elimination of flash sales will counter-act any cannibalization E Anti-Trust concerns, given large horizontal merger E Recent horizontal mergers and other major fashion conglomerates set precedent for regulatory approval
Various Case Studies And Conviction In Rationale Mitigate The Majority Of Merger Risks Though These Should Be Actively Monitored Should A Process Commence
Strictly Private & Confidential Page 19 Conclusion Recommendation To Merge With Capri Holdings And Engage Us, Desautels Capital Management, As An Advisor
Why Hire Desautels Capital Management
Expertise in Luxury Retail Industry and company expertise helps us advise on synergy implementation, future growth Considerable relationships opportunities, integration and expected market sentiment of transaction and experience
Desautels Capital Management is focused on strategic advisory to ensure that all clients Advisory Focused operate in the most optimal manner to maximize shareholder value No conflict of interest with lending arrangement Interest has already been generated surrounding leverage and given equity heavy consideration, we are confident that adequate leverage will be available
Capri Relationship Desautels Capital Management has a prior relationship with the Capri Holdings Promotes targeted friendly management team, this would make it easier to start negotiations on a friendly note and process perhaps create a more private process
Desautels Capital Managements Superior Expertise, Firm Structure, And Relationships Are All Reasons Why You Should Engage Us Over Our Competition
Strictly Private & Confidential Page 20 Appendix
Strictly Private & Confidential Page 21 Company Overview Kate Spade and Stuart Weitzman Provide Geographic and Product Growth Levers
Women's Women's Handbags 2% Handbags 8% 24% Footwear 20% Product Women's Women's 54% 55% Accessories Accessories Handbags & Mix 18% 21% other 98% Men's Other Lifestyle Categories
North North 17% North America 43% America America 36% Int’l Mix 57% International International International 64% 83%
Annual Revenue $4.22B $1.28B $374M
Operated Stores 987 342 103 Employees 13,500 5,500 940
Coach Sets the Model for an International Luxury Retailer That Tapestry’s Other Brands Can Leverage to Achieve Similar International Success
Strictly Private & Confidential Page 22 Comparison of Tapestry and Capri Holdings Tapestry and Capri are Both High-End US Retail Conglomerates
Genre High-End Luxury, High-End, and Upscale
Core Product Focus Modern luxury and lifestyle Accessories, footwear, and apparel
Key Brands
North 17% North 13% America America 23% Geography Asia 24% 59% Europe 64% Other Asia
Headquarters New York New York
Sales EBITDA EV/EBITDA EV Debt Cash Tapestry $5.0bn $1.2bn 8.8x $10.1bn $1.6bn $1.2bn Capri $4.7bn $1.0bn 9.0x $9.2bn $2.5bn $163.0mm
Strictly Private & Confidential Page 23 Coach’s Success In China Will Benefit Other Brands Ability to Share Supplier and Distributor Relationships Can Provide Platform for Chinese Growth for Tapestry Brands
Coach Revenues are Growing More and More International, and Kate Spade and Stuart Weitzman Will Follow
Coach N.A. Revenue Coach International Revenue
24% 25% 28% 30% 28% 30% 31% 35% 41% 47% 48% 50%
76% 75% 72% 70% 72% 70% 69% 65% 59% 53% 52% 50%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
While Slowing, Coach’s Penetration in China Will Provide a Roadmap for Tapestry’s Other Two Brands
700 $650 120% $594 $601 $599 600 $545 100% 500 $425 80% 400 $303 60% 300 $185 40% 200 $108 100 $54 20% 0 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Coach China Revenues ($millions) Coach China Revenue Growth YoY
Coach’s Success in China Over 10 Years Shows the Potential Growth that TPR’s Other Brand’s Can Achieve in the Next 10 Years
Strictly Private & Confidential Page 24 Trend #1: Polarization of Winners and Losers 97% Of Economic Profits For The Industry Being Generated By 20 Companies, Most of Which are Luxury
Top Fashion Companies Generate Most Economic Profit
Fashion companies contribution to industry Total economic profit by price segment (2017) economic profit (%) % of all public companies
Premium Bridge 11 1 Economic profit of Top 20 players Value Mid-Market 24 36
144 100 129 Luxury & Affordable Luxury Bottom 20% 28 Top 20% • 21% - 80% 1 Fashion industry is experiencing growing contribution from top quintile companies to industry economic profit 18 3 6 • Polarization has led to a smaller group of winners, most of them in the -18 luxury segment. The top 20% is experiencing a widening disparity with -34 winners accounting for 97% of EP (70% in 2010) -47 2 • Number of “value-destroying” companies (generating negative 2 economic profit) has almost doubled between 2010 and 2018
2010 2016 2018 • Companies able to differentiate on price point/efficiency or brand 3 have performed best
Polarization Continues To Be a Harsh Reality in Fashion With 97% of Economic Profits for the Industry Being Generated By 20 Companies
Strictly Private & Confidential Page 25 Trend #2: China to Re-Emerge as Growth Lever in Luxury While Growth Has Slowed, Significant Growth Opportunities Exist for Companies Not Currently in China
After a Decade of Luxury Growth, China Has Slowed Percent of Global Luxury Retail Purchases Made in China
Both mainland China and Hong Kong continue to experience a 45% slowdown in luxury goods spending, with economic uncertainty dampening consumer confidence 32% The Hong Kong market is still affected by the strained relations with the mainland, with many wealthy Chinese tourists staying away and choosing to travel to other Asian cities such as Singapore and Tokyo
However, China will remain a key growth lever for luxury retail players going forward
2018 2025E
Which Markets Offer Attractive Expansion Opportunities?
Increase in Stores by City in 2017 8.0% 6.0% 4.0% 2.0% 0.0% Paris Tokyo Singapore Milan London Hong Kong New York Los Angeles Kuala Toronto Shanghai Lumpur
Luxury Affordable Luxury
Coach Can Leverage its Success in China to Help Brands Under the Tapestry Umbrella Capitalize on the China Opportunity
Strictly Private & Confidential Page 26 Precedent Transactions No Perfect Precedent Given Capris conglomerate business model
Precedent Transactions: EV/LTM Revenue Multiple
4.0x
3.1x 2.7x 2.7x Average: 2.7x 2.2x 2.0x 1.7x 1.7x
1 2 3 4 5 6 7 8 9
Precedent Transactions: EV/LTM EBITDA Multiple
22.4x 22.0x 18.3x Average: 15.8x
9.1x 8.8x 7.3x 7.9x
1 2 3 4 5 6 7 8
High End Luxury Retailers Warrant Significant Premiums, Like Versace, Due To Attractive Growth Opportunities
Strictly Private & Confidential Page 27 Merger Model Assumptions Costs and Revenues Synergies
Synergies Description Express as % of Target Sales* Justification
Low Medium High Pooling of resources to optimize distribution and production facilities 1) Cost of Goods Sold Production efficiencies 0.50% 2.00% 3.50% (economies of scale and economies of scope).
Tapestry and Capri's core business remains centered on creative content generation and trend identification. The merged entities can 2) Design Costs Shared design costs 0.50% 2.00% 3.50% reduce sourcing and R&D costs significantly, and benefit from bargaining power with manufacturer and wholesalers.
There is low visibility in the overlap between Capri and Tapestry. We expect management teams to remain separated as brands should be 3) Overhead Costs Shared overhead costs 0.50% 2.00% 3.50% operated independently (LVMH case study). However, we expect significant cost synergies from overhead costs by combining distribution facilities on a global scale. Market power synergies: benefit from bargaining power with 4) Marketing Costs Shared marketing costs 0.50% 2.00% 3.50% emplacements, fashion magazines, wholesalers and real estate third parties.
E-commerce penetration: Tapestry can keep customers at the center Share distribution of their strategy by pressing forward with digital initiatives and 5) Share Distribution Channels 0.50% 2.00% 3.50% relationships quickly and efficiently scaling Coach and Kate Spade’s omni-channel presence by leveraging Michael Kors expertise in e-commerce.
Leverage Coach expertise to increase Michael Kors and Kate Spade Share geographic 6) Geographic Expansion 0.50% 2.00% 3.50% exposure to China and Asian markets (which make up at least 45% of relationships the market in 2025).
Strictly Private & Confidential Page 28 Model Outputs Pro-Forma Outputs
Strictly Private & Confidential Page 29 Sources & Uses Base Case Assumption of 60/40 Equity / Cash Consideration
Sources Funding Sources Stock Issued 6,899 New Debt 3,600 Cash from Acquirer 1,000 External Funding 11,499 Cash Available at Target 163 Total Funding Sources 11,662
Uses Uses of Cash Acquirer Standalone Cash Balance 1,243 Acquirer Standalone Cash Balance 163 Combined Cash Balance 1,407 Acquirer Cash Used in Deal (1,000) Cash Available for Transaction 407 Excess Cash Available from Target 163 Excess Cash Available from Acquirer 243
Acquirer Cash Balance Used 1,000
External Financing Stock Portion 60.0% Cash / Debt Portion 40.0% Total 100.0%
Strictly Private & Confidential Page 30 Comparable Companies Analysis Lack of Perfect Comparable in the North American Luxury Conglomerate Space
Ralph Lauren 15.8% 16.27x 10.80x 1.32x PVH Corp 14.5% 10.86x 8.21x 1.14x VF Corp 14.7% 20.06x 14.86x 2.45x Hanesbrands 20.2% 10.13x 9.18x 1.45x
LVMH 25.9% 19.78x 11.20x 2.56x Kering 32.8% 17.19x 13.40x 3.20x Inditex 21.0% 23.13x 13.60x 2.69x
Strictly Private & Confidential Page 31 Peer Leverage Analysis Pro-forma entity financed with 60/40 Equity/Debt will bring Net Debt / EBITDA roughly in line with peers
2.5x 2.4x
2.0x 1.9x
1.7x 1.7x 1.6x
1.1x
Ralph Lauren Marks & LVMH Nordstrom Kering Tommy Hilfiger Richemont Merged Spencer Company
Strictly Private & Confidential Page 32 Major Shareholder Considerations Both Entities Are Majority Owned By Institutional Passive Shareholders
Capri could offer board seat so Tapestry Michael maintains influence Voting Strategic Michael is a Fiduciary entrusted to Direction for namesake Considerations maximize shareholder value – company and will his Actions attractive premium and equity Will I lose considerable current control Board seat, upside maximize current considerable continue synergy control conviction and shareholder value fiduciary Give Michael option to maintain creative control of namesake brand
Passive investors will be granted a Board recommendation, premium above valuation and in Voting influenced by Michael Kors, Expected line with precedents. Considerations and advice from proxy Outcome Proxy voting governance agencies Does premium governing bodies Vote in favour of likely to advice voting in favour of accurately Advice relies on conviction of merger acquisition reflect value synergies and valuation Equity consideration for long term capital appreciation
Large Passive Shareholders Will Likely Follow Board Recommendation And Fairness Opinion, Which We Expect Will Be In Favour
Strictly Private & Confidential Page 33