Tapestry: Capri Acquisition Will Probably Fail After Court Ruling; Shares Attractive

Shares of Tapestry rose about 15% on Oct. 25 after US District Court Judge Jennifer Rochon granted a motion by the US Federal Trade Commission to put its acquisition of Capri on hold pending the completion of the agency's in-house administrative proceeding. We attribute the positive reaction in the shares to investors' concerns regarding the price offered for Capri, the complexity of the deal, the debt raised to fund the acquisition, and Michael Kors' weak results over the past few quarters. Although we have had a more positive view of the deal than most, we rate Tapestry as a narrow-moat company but give a no-moat rating to Capri due, primarily, to our belief that Coach is a stronger brand than Michael Kors.