Michael Kors (NYSE:KORS) has bid $1.2 billion to buy London-listed luxury shoemaker Jimmy Choo (LON:CHOO). The valuation is 15.2 times forward earnings before interest, taxes, depreciation and amortization. The total price, including assumed net debt is $1.35 billion.
Michael Kors is paying a 37 percent premium to the closing price before Jimmy Choo said it was putting itself up for sale in April. Shares in Jimmy Choo rose 82 percent before the Michael Kors deal announcement. Michael Kors’ shares sank more than 4 percent after news of the potential deal emerged. The company’s share price has slid from a peak of $98 in early 2014 to roughly $35 now.
The Jimmy Choo brand rose to prominence thanks to celebrity patrons like Princess Diana and the “Sex and the City” star Sarah Jessica Parker. The British shoe brand is known for its stiletto heels and accessories. Jimmy Choo sells worldwide in cities from London to New York to Tokyo.
Shortly after the deal was announced, CEO John Idol said, “This will not be [Michael Kors’] last acquisition.” Idol said, “Acquiring Jimmy Choo is the beginning of a strategy that we have for building a luxury group that really is focused on international fashion brands.” Those acquisitions will focus on luxury companies that “lead in style and trend” and have “some heritage”, according to Idol.
Michael Kors said in a statement that it is “the ideal partner” for the Jimmy Choo brand. The two brands have very little overlap in manufacturing and distribution. The deal could increase Michael Kors’ total footwear revenue from 11 percent of sales to 17 percent. The two brands will continue to operate separately, according to Idol.
Heavy discounting among American retailers have eroded the company’s operating margins. The company has seen its same-store sales drop in recent quarters and its core handbag business has slowed. Idol said the company is trying to be careful about when and where it opens brick-and-mortar locations.
Jimmy Choo was put up for sale in April by its majority owner, JAB Holdings, after barely three years as a public company. The brand’s same-stores sales in 2016 were down 0.8 percent when compared to the previous fiscal year. Michael Kors has more than doubled its own sales between its 2013 and 2017 financial years. It’s worldwide store count has grown from around 200 four years ago to 827 today.