Fellow Investors,
The ruling has come out regarding the Tapestry (TPR) / Capri (CPRI) merger in favor of the FTC. I know it’s not what many of you were hoping for but just like the JetBlue (JBLU) / Spirit (SAVE) deal, it’s a shock to many.
If you’ve been following my research over the last ~10 months, there was a strong case to be made for the judge to block the preliminary injunction by the FTC. The market realized this once the trial started back in September and had quickly regained lost ground since then.
As market close today, the market was implying a ~58% chance of approval based on my CPRI break price of $20/share which I shared with you all the day before the trial.
Although this was a small position for me, which I’ve been very open about in my letters, it still stings. Genuinely, I’m not quite sure how to look at M&A arbitrage going forward under the helm of Lina.
While I had never placed the odds above 70%, I don’t believe this was the right decision. I felt the same way with SAVE as well and almost a year later they ended up doing exactly what the fear was absent of a deal, contemplating filing for bankruptcy.
Going Forward
With Capri as a standalone company once more, I think there are more hurdles to go through before the turnaround takes hold, especially as you see continued pressure in luxury.
I have no interest or confidence that Capri can institute a turnaround on their own and even if they could, the timing would not be ideal.
I have not, repeat, have not sold my position but will look to do so tomorrow once the initial panic selling is done and the dust settles.
For those who want to stay long, it might make sense to weigh options for CPRI to divest the Versace and Jimmy Choo brands in an effort to raise cash, pay debt, and reinvest capital into the Kors brand.
I’m not saying this is likely, or even a possibility, but it’s something to think about.
Will update you all via the chat when I sell my position officially. Remember, while it stings, it’s just money at the end of the day. Not worth doing anything permanent.
Any questions, comment below so others can see and benefit from the discussion.
All the best,
Paul Cerro | Cedar Grove Capital
Personal Twitter: @paulcerro
Fund Twitter: @cedargrovecm