private & confidential project catwalk...michael kors coach industry average leverage coach...
TRANSCRIPT
PRIVATE & CONFIDENTIAL
Merger Considerations
Project Catwalk
March 2019
Strictly Private & Confidential Page 2
Team ProfileTeam of Dedicated Individuals with Significant Strategic Advisory Experience
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
Kyle Costanzo
Born and raised in Princeton New Jersey, Kyle grew interested in finance after interning at an energy brokerage firm after high school.�When�he’s�not�working�on�stock�pitches�for�HIM’s�Consumers sector, Kyle serves as the co-president of JED Consulting,�McGill’s�student-run consulting firm. In his time outside of studies, Kyle goes skiing,�maps�out�Montréal’s�coffee scene, and plays poker tournaments.
+1 438-880-8951
McGill UniversityB.Comm
Emilie Granger was born and raised in Montreal, Canada. Growing up with a brother in Investment Banking, Emilie always knew she wanted to undertake a career in Finance. At McGill, Emilie is an ambassador for Women in Capital Markets. Outside of McGill, Emilie enjoys playing soccer and countryside hiking. She also competes in sprint triathlons.
Emilie Granger
+1 609-947-8339
McGill UniversityB.Comm
+1 438-926-4428
McGill UniversityB.Comm
Tejas Saggi
+1 905-601-1227
McGill UniversityB.Comm
Eric Van Hees
Tejas was born in India and raised in the suburbs of Vancouver, BC. At a young age, he realized he had a knack for Excel shortcuts and so the natural rite of passage was to enter finance. He now spends the majority of his days rethinking this decision. As a true financier, he recently picked up squash. Outside of finance, Tejas enjoys playing basketball and traveling.
Eric was born and raised in Oakville, Ontario. His interest in finance originates from his involvement with his high school investment club. His time at McGill has been filled with extracurriculars including being a member of the Varsity Lacrosse team and the McGill Investment Club. Outside of school, Eric can be found playing guitar or socializing with friends.
Strictly Private & Confidential Page 3
Mitigant
1. Merger�solves�Capri’s�inventory�issue,�
which is the reason stock has fallen
2. Track record of success of this org
structure with LVMH. Extract value by
separating affordable luxury and luxury
3. No scrutiny for similar recent mergers
Executive SummaryTapestry Should Merge with Capri Holdings to Create the First True US-Based Luxury Conglomerate
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
Risks
1. Market has punished Capri recently due to
their inventory issues (-60% from peak)
2. Organizational structure overhaul
necessary to integrate Capri with TPR (i.e.
must give all brands autonomy)
3. Antitrust concerns
Considerations SummaryRisks and mitigants and strategic alternatives
� Rationale For Tapestry Merger With Capri Holdings:
− Increase profitability by moving deeper into luxury
− Lower business risk by diversifying product lines
− Immense revenue and cost synergy potential
− Potential for operational efficiencies through business re-organization
− Attractive Valuation
Strategic Summary
Merger will Create First True
US-Based Luxury Retail
Conglomerate
� Premium: $59 purchase price represents a 30% premium to current share price and a
11.0x TEV / NTM EBITDA
� 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)
Financial SummaryRealistic and reasonable offer for Capri Holdings
Strictly Private & Confidential Page 4
$0
$20
$40
$60
$80
$100
$120
Mar 14 Mar 15 Mar 16 Mar 17 Mar 18 Mar 19
S&P 500 Tapestry Capri Holdings
The Tapestry Story: Strategic ObjectivesThe Current Situation
Tapestry Is At a Cross Roads With An Interesting Opportunity to Pursue Capri Holdings for A Merger
Tapestry is a North American Luxury
Retailer
Increased competition from
other North American Luxury
Retailers
Low global market share for luxury goods
M&A strategy to gain scale in North America and diversify product
lines
Leverage competencies of
both companies to exploit growth areas
Foundation Fright Formation Follow-On
• Diversification: Successful Men’s�and�apparel�segments�fill�gaps�in�Tapestry’s�product�line
• Luxury: Capri offers luxury brands like Versace that can improve profitability at Tapestry
• Inefficiency Reduction: Potential to re-organize Capri holdings to reduce inefficiencies in inventory management
• China Access: China opportunity is largely untapped
Strictly Private & Confidential Page 5
Competitive LandscapeTapestry Competes in the Affordable Luxury and Luxury Market Segments
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
Genre High-EndLuxury, High-End,
and UpscaleLuxury Luxury Upscale
Core Product FocusModern luxury and
lifestyle
Accessories, footwear, and
apparel
Fully diversified luxury products
Fully diversified luxury products
Premium lifestyle products
Key Brands
Geography
North America (59%)Asia (24%)
Other (17%)
North America (64%)Europe (23%)
Asia (13%)
North America (19%)Europe (35%)
Asia (40%)Other (6%)
North America (23%)Europe (28%)
Asia (37%)Other (12%)
North America (56%)Europe (40%)
Asia (3%)Other (1%)
Headquarters New York New York Paris Paris New York
Recent EventsRecently acquired
Kate SpadeRecently acquired
VersaceSold Puma back to
original shareholders
Bought remaining interest in Dior
brand
Closed flagship store on Fifth Avenue
% Luxury Goods Market, 2017
0.01% 0.01% 4.1% 10.6% NA
Strictly Private & Confidential Page 6
Overview of Strategic Alternatives Available to TapestryTapestry Should Merge With Capri Holdings
Company OverviewImproved Growth
ProspectsIncrease
ProfitabilityLikelihood
of Approvals
Low Riskiness of
Implementation
Status Quo – Make no Acquisitions
� Make no acquisition and continue price battles with Capri
� Capri margin remain below potential, while debt levels remain relatively low
Acquire Ralph Lauren
� Gain scale in US, and fill gaps in menswear and apparel
� Low likelihood of successful China entry� Lower luxury than Tapestry hurts TPR brand image
Acquire Select Capri Holdings Assets (i.e.
Versace)
� While enabling Tapestry to gain scale and luxury, it is unlikely that Capri would give all market power in the US to Tapestry, and sell Versace which they recently bought
Merge With Capri Holdings
� Reduce price competition in North America to increase margins
� Significant cost and revenue synergies� Better compete with LVMH and Kering
Merging With Capri Will Create the First North American Retail Conglomerate in Centuries, and Will Enable Significant
International Growth Opportunities and Domestic Margin Increases
Luxury Fashion
Experience, exclusivity, and logo trendGlobal exposure – attractive to growing Asian market
Affordable Luxury
Strictly Private & Confidential Page 7
Summary of Rationale for Merger with Capri HoldingsMerger Will Create The First Ever North-American Luxury Conglomerate, Competing with the Likes of LVMH
By Merging with Capri Holdings, Tapestry Can Achieve A Valuation Uplift Through Increased Profitability, Significant Synergies,
and Added Operational Efficiencies
� Increased Margins: Conglomerates allow for economies of scale, increasing margins
� Increased Growth Prospects: Conglomerates can transfer competencies to other
portfolio brands (ex. Leveraging presence of brand in China to expand other brands)
Higher Profitability of
Conglomerates in Luxury
Space
1
� Fill Product Gaps: Diversify into other product segments such as clothing and menswear
� Enter Higher End Segments: Versace and Jimmy Choo appeal to higher end customers
helping the company partly alleviate risk of retail slowdown
Diversify Product and
Segment Mix, Lowering
Business Risk
2
� Revenue: Geographic�expansion,�eliminate�need�to�cut�prices�(“flash�sales”),�leverage�
distribution relationships, build centralized e-commerce platform
� Cost: Economies of scale, shared cost structure, increased power over suppliers
Significant Revenue and
Cost Synergy Potential
3
� Reorganize Capri Organizational Structure: Capri’s�portfolio�is�highly�centralized�which�
lowers�responsiveness�of�brands�to�market�trends;�Tapestry’s�structure�of�increased�
agency�amongst�brands�would�increase�Capri’s�operational�efficiency�
Potential for Operational
Efficiencies Through
Cultural Reorganization
4
� Buy Low: Capri down 60% from 2014 peak, creating a unique opportunity to buy at a low
� Capri Cashes Premium: Capri shareholders receive a premium at a time when Capri is
performing poorly
Attractive Valuation Due
to Recent Market
Performance of Capri
5
Strictly Private & Confidential Page 8
Rationale #1: Higher Profitability of Conglomerates in Luxury SpaceCase Studies of LVMH, Kering and Inditex Demonstrate Benefits of Being A Conglomerate
Tapestry Will Achieve Significant Operational Efficiencies That Will Boost Margins and Create Value for Shareholders Through
Multiple Expansion By Merging with Capri
EBITDA Margins of Companies in Luxury Space Increased Profitability Results in Conglomerate Premium
10%
15%
20%
25%
30%
35%
Tapestry Burberry Polo LVMH Kering
2016 2017 2018
Conglomerates
10.5x 10.6x 10.8x11.2x
13.4x 13.6x
Tapestry Burberry Polo LVMH Kering Inditex
EV / LTM EBITDA
Conglomerates
Strictly Private & Confidential Page 9
51% 52%
18%20%
14%11%
6%10%
4%11%3%
Pre-Merger Post-Merger
Handbags Accessories Men's
Footwear Clothing Other
Rationale #2: Diversify Product and Segment Mix, Lowering RiskMerger with Capri Will Create Diversified Mix Both in Terms of Products and Customer Segments
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
Merger Yields More Diversified Product Mix Segment Mix Post-Merger Shifts Towards Luxury
94%89%
6%11%
Pre-Merger Post-Merger
Affordable Luxury Luxury
Merger will almost double percentage of revenue
coming from higher-margin Luxury segment
Strictly Private & Confidential Page 10
Transfer Of Know-How Will Allow Both Brands To Extend Their Existing Product Offering, And Geographic Footprint
Rationale #3: Significant Revenue and Cost Synergy PotentialRevenue Synergies Achieved From Pricing and Expansion Tailwinds
Geographic Expansion - China
Pricing War
E-commerce Penetration
Chinese consumers are likely to make up at least 45% of
the market in 2025 (from 32% in 2018), and they will make
half of their luxury purchases at home
6%
15%
8%
Michael Kors Coach Industry Average
Leverage Coach expertise
exposure to top tier cities
digital investments
extensive marketing
Exposure to China
The Hard Reality of Digital Everything
42% 41% 17%
Store Only Researched online,
purchased offline Online
Digital Influence (2017)
91% 89% 88% 86% 85% 83%
9% 11% 12% 14% 15% 17%
2017 2018 2019E 2020E 2021E 2022E
Channel Distribution
Offline Online
Tapestry can keep customers at the center of their strategy by
pressing forward with digital initiatives and quickly and efficiently
scaling�Coach�and�Kate�Spade’s�omni-channel presence by
leveraging Michael Kors expertise in e-commerce
Eliminate price wars and increase pricing on all affordable luxury
brands (Kate Spade, Coach, Michael Kors)
Tapestry’s�share�price�has�soared�in�recent�years�as�the�company�
worked to decrease its reliance on big promotions, step up the
quality of its handbags, and increased sales price
Strictly Private & Confidential Page 11
Rationale #3: Significant Revenue and Cost Synergy PotentialCost Synergies Achieved From Centralized Support Functions Operated As Shared Centralized Services
Taxiway to Margin Expansion
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
Bargaining Power at Malls and Flagship Locations
6% 7%10%
8%
13%
6% 6%
11%8% 8%
Apparel andfootwear
Bags andaccessories
Cosmetics andfragrances
Jewellery andwatches
Multiple luxurygoods
Performance by luxury fashion product sector 2017
Profit margin Return on assets
1. Shared marketing costs
2. Overhead costs
3. Design costs
4. Production efficiencies
With more luxury brands in luxury malls and with
more flagship locations, Tapestry can benefit from
bargaining power with real estate third parties
32%
25%
21%
13%
9%Monobrand StoreSpecialty StoreDepartment StoreOff-Price StoreOnline Store
How Luxury Groups Create Added Value?
Function SynergyValue
Creation
Productive Functions
Manufacturing
Purchasing
Sourcing
R&D
Supportive Functions
Distribution
Marketing
Real Estate
Back Office
Know-How Best Practices
Efficiency Productivity
Strictly Private & Confidential Page 12
Rationale #4: Generate Efficiencies Through Cultural ReorganizationCapri’s�Organizational�Structure�Reveals�Inefficiencies�That�Could�Be�Alleviated�Through�Reorganization
Capri Holdings Current Organizational Structure – Centralized
What LVMH and Kering’s Organizational Structures Allow
Tapestry Organizational Structure – Siloed
John Idol
CEO
Thomas Edward
CFO
Michael Kors
CCO
Cathy Robinson
COO
Joshua Schulman
CEO - Coach
Victor Luis
CEO
Anna Bakst
CEO – Kate Spade
Eraldo Poletto
CEO – Stuart Weitzman
Michael Braine
CIO
Todd Kahn
CLOAndrea Shaw
CFO
…
… … …
NY Headquarters
NY Headquarters
A
B
Retain strategic direction within each division
Develop identifiable elements that make up the brand perception– increase ability to cross-sell portfolio brands
Strictly Private & Confidential Page 13
Rationale #4: Generate Efficiencies Through Cultural ReorganizationThrough Cultural Reorganization, We Can Create A Structure That Is In-Line With European Conglomerates
Merged Organizational Structure – Siloed and Centralized
Kate Spade
President
Stewart Weitzman
President
Victor Luis
CEO
…
NY Headquarters
Coach
President
Michael Kors
President
MK Collection
President
Versace
President
Affordable Luxury
CEO
Luxury
CEO
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 14
1
Rationale #5: Attractive Time To MergeCapri Is Trading At A Low Creating A Unique Opportunity to Buy A Portfolio of Leading Luxury Brands for Cheap
Tapestry�Can�Benefit�From�Capri’s�Core�Competencies�and�Add�Unique�Value�to�Extract�Returns�
Capri Has An Attractive Valuation After Poor Performance Low Debt and High P/E Give Tapestry Capacity to Acquire
0.3x Net Debt/EBITDA
3.0% Net Debt/Enterprise Value
$1.2B Cash Balance
At 0.3x Debt to EBITDA and only a 3% Net Debt/EV, Tapestry has plenty of capacity to use debt to fund acquisitions
Capacity to Add Debt
Tapestry would be able to acquire select brands to add to their portfolio for under $1.2B
Ample Cash Balance
14.4x P/E Ratio vs. 10.6x average for American Luxury Conglomerates
Relative to direct peers, Tapestry has a higher P/E
Equity Consideration Still Accretive Due to High P/E
2
3
$0
$20
$40
$60
$80
$100
$120
Mar 14 Mar 15 Mar 16 Mar 17 Mar 18 Mar 19
S&P 500 Capri Holdings
Strictly Private & Confidential Page 15
Capri Holdings Valuation SummaryBlended Valuation Results in a Roughly 28% Premium to Current Share Price
Capri Holdings Future Growth Is Driven by Versace and Jimmy Choo, With a Slight Margin Expansion From Prior Acquisition
Integration
Intrinsic Valuation
Comparable Companies Analysis
Informational Range
Target Price:$59.00
Current Price: $46.00
Strictly Private & Confidential Page 16
Merger Model 1.36 Share Exchange and $13.31 Cash Resulting in 30% Premium and $59 of Shareholder Value (11x EBITDA)
Key Merger Assumptions
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.
Merger Sensitivity Analysis
2021E EPS Accretion
Premium Paid
### 10.0% 20.0% 30.0% 40.0% 50.0%
40% 48% 43% 38% 34% 29%
50% 40% 36% 33% 29% 24%
% Equity 60% 31% 28% 24% 21% 18%
70% 24% 20% 17% 14% 11%
80% 18% 14% 11% 7% 4%
2021E EPS Accretion
Premium Paid
45.3% 10.0% 20.0% 30.0% 40.0% 50.0%
High 49% 45% 41% 38% 34%
Synergies Medium 31% 28% 24% 21% 18%
Low 13% 10% 7% 5% 2%
� 30% premium provides Capri shareholders with an attractive price that is in-line with
intrinsic value and competitive based on precedents. Our base case results in a 1.36 share
exchange and $13.31 per Capri shareholder, resulting in a total of $59.22 of value.
Price Considerations
Attractive price for Capri
Shareholders
� A higher equity component, despite being more expensive, allows flexibility for pro-forma
entity to pursue growth avenues and entices major shareholders to vote in favour of merger.
Attractive upside for Capri shareholders from long term synergy realization.
Financing Considerations
Higher equity component, while
maintaining accretion
� The pro-forma company will realize revenue, expense and cultural synergies. Despite
conservative estimates, we still forecast considerable accretion. Conservative ramp up until
2023.
Synergy Considerations
Considerable upside from
multi-channel growth avenues
Strictly Private & Confidential Page 17
Major Shareholder ConsiderationsSignificant Focus Should Be Placed On Institutional Investors And 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
11.3%
10.0%
4.3%
66.7%
Tapestry Major Shareholders Capri Holdings Major Shareholders
Other 10.3%
6.9%
6.5%
4.3%
2.9%62.7%
Other
Michael
Kors
Strictly Private & Confidential Page 18
2.90%
1.14%
Before After
Michael Kors Expected Voting DirectionMulti-Pronged Strategy of Equity Consideration and Board Seat Provides Mr. Kors with Considerable Influence
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
Illustrative�Mr.�Kors’�Ownership�Comparison
Mr.�Kors’�Expected�Vote
Board Seat Equity Consideration Fiduciary Duty
Expected to Vote in Favour
Strictly Private & Confidential Page 19
Merger Considerations and MitigantsRelatively Limited Downside With Capri Merger Given Strong Merger Rationale
Various Case Studies And Conviction In Rationale Mitigate The Majority Of Merger Risks Though These Should Be Actively
Monitored Should A Process Commence
Merger Considerations Mitigants
• Luxury�retailers�being�punished�for�Capri’s�inventory management practices which may hurt�Tapestry’s�brand�image
� Cultural risk as Capri is re-structured to match�Tapestry’s�organizational�structure
� Auction competition driving up price and negatively affecting Tapestry shareholders
� Potential cannibalization of revenues between Michael Kors and Kate Spade
� Anti-Trust concerns, given large horizontal merger
A
B
C
D
E
A
B
C
D
E
• Implementation of new organizational structure and Tapestry expertise will fix inefficiencies and eliminate discount
� The focused management model has a proven track-record of success in Luxury Retail
� LVMHs recent acquisition spree will likely leave them out of process + Tapestry can offer autonomy to MK unlikely LVMH / Kering
� Elimination of flash sales will counter-act any cannibalization
� Recent horizontal mergers and other major fashion conglomerates set precedent for regulatory approval
Strictly Private & Confidential Page 20
ConclusionRecommendation To Merge With Capri Holdings And Engage Us, Desautels Capital Management, As An Advisor
Why Hire Desautels Capital Management
� Industry and company expertise helps us advise on synergy implementation, future growth
opportunities, integration and expected market sentiment of transaction
Expertise in Luxury Retail
Considerable relationships
and experience
� Desautels Capital Management is focused on strategic advisory to ensure that all clients
operate in the most optimal manner to maximize shareholder value
� Interest has already been generated surrounding leverage and given equity heavy
consideration, we are confident that adequate leverage will be available
Advisory Focused
No conflict of interest with
lending arrangement
� Desautels Capital Management has a prior relationship with the Capri Holdings
management team, this would make it easier to start negotiations on a friendly note and
perhaps create a more private process
Capri Relationship
Promotes targeted friendly
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 21
Appendix
Strictly Private & Confidential Page 22
Company OverviewKate Spade and Stuart Weitzman Provide Geographic and Product Growth Levers
Coach�Sets�the�Model�for�an�International�Luxury�Retailer�That�Tapestry’s�Other�Brands�Can�Leverage�to�Achieve�Similar�
International Success
Product
Mix
Annual
Revenue
Int’l�Mix
Employees
Operated
Stores
$4.22B $1.28B $374M
987
13,500
342
5,500
103
940
54%
18%
20%
8%
Women'sHandbags
Women'sAccessories
Men's
57%43%
NorthAmerica
International
55%21%
24%
Women'sHandbags
Women'sAccessories
OtherLifestyleCategories
83%
17%NorthAmerica
International
98%
2%
Footwear
Handbags &other
64%
36%NorthAmerica
International
Strictly Private & Confidential Page 23
Comparison of Tapestry and Capri HoldingsTapestry 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
Geography
Headquarters New York New York
59%24%
17%NorthAmericaAsia
Other
64%
23%
13%NorthAmericaEurope
Asia
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 24
Coach’s�Success�In�China�Will�Benefit�Other�BrandsAbility 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’s�Success�in�China�Over�10�Years�Shows�the�Potential�Growth�that�TPR’s�Other�Brand’s�Can�Achieve�in�the�Next�10�Years
While�Slowing,�Coach’s�Penetration�in�China�Will�Provide�a�Roadmap�for�Tapestry’s�Other�Two�Brands
76% 75% 72% 70% 72% 70% 69% 65% 59% 53% 52% 50%
24% 25% 28% 30% 28% 30% 31% 35% 41% 47% 48% 50%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Coach N.A. Revenue Coach International Revenue
$54$108
$185
$303
$425
$545$594 $601 $599
$650
0%
20%
40%
60%
80%
100%
120%
0
100
200
300
400
500
600
700
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Coach China Revenues ($millions) Coach China Revenue Growth YoY
Strictly Private & Confidential Page 25
Trend #1: Polarization of Winners and Losers97% Of Economic Profits For The Industry Being Generated By 20 Companies, Most of Which are Luxury
Top Fashion Companies Generate Most Economic Profit
Polarization Continues To Be a Harsh Reality in Fashion With 97% of Economic Profits for the Industry Being Generated By 20
Companies
183 6
100144
129
-18
-47-34
2010 2016 2018
Fashion companies contribution to industry economic profit (%)
Bottom 20%
Top 20%
21% - 80% 1
2
• Fashion industry is experiencing growing contribution from top
quintile companies to industry economic profit
• Polarization has led to a smaller group of winners, most of them in the
luxury segment. The top 20% is experiencing a widening disparity with
winners accounting for 97% of EP (70% in 2010)
• Number�of�“value-destroying”�companies�(generating�negative�
economic profit) has almost doubled between 2010 and 2018
• Companies able to differentiate on price point/efficiency or brand
have performed best3
1
2
Mid-Market 36
Luxury & Affordable Luxury28
Value 24
Premium Bridge11
Total economic profit by price segment (2017)% of all public companies
Economic profit of Top 20 players
Strictly Private & Confidential Page 26
Trend #2: China to Re-Emerge as Growth Lever in LuxuryWhile Growth Has Slowed, Significant Growth Opportunities Exist for Companies Not Currently in China
Coach Can Leverage its Success in China to Help Brands Under the Tapestry Umbrella Capitalize on the China Opportunity
0.0%
2.0%
4.0%
6.0%
8.0%
Paris Tokyo Singapore Milan London Hong Kong New York Los Angeles KualaLumpur
Toronto Shanghai
Increase in Stores by City in 2017
Luxury Affordable Luxury
Which Markets Offer Attractive Expansion Opportunities?
32%
45%
2018 2025E
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
slowdown in luxury goods spending, with economic uncertainty
dampening consumer confidence
� 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
Strictly Private & Confidential Page 27
22.4x 22.0x
18.3x
9.1x7.3x
8.8x 7.9x
1 2 3 4 5 6 7 8
4.0x
3.1x2.7x 2.7x
2.2x1.7x 1.7x
2.0x
1 2 3 4 5 6 7 8 9
Precedent TransactionsNo Perfect Precedent Given Capris conglomerate business model
Precedent Transactions: EV/LTM Revenue Multiple
Precedent Transactions: EV/LTM EBITDA Multiple
Average: 2.7x
Average: 15.8x
High End Luxury Retailers Warrant Significant Premiums, Like Versace, Due To Attractive Growth Opportunities
Strictly Private & Confidential Page 28
Merger Model Assumptions Costs and Revenues Synergies
Synergies Description Express as % of Target Sales* Justification
Low Medium High
1) Cost of Goods Sold Production efficiencies 0.50% 2.00% 3.50%Pooling of resources to optimize distribution and production facilities
(economies of scale and economies of scope).
2) Design Costs Shared design costs 0.50% 2.00% 3.50%
Tapestry and Capri's core business remains centered on creative
content generation and trend identification. The merged entities can
reduce sourcing and R&D costs significantly, and benefit from
bargaining power with manufacturer and wholesalers.
3) Overhead Costs Shared overhead costs 0.50% 2.00% 3.50%
There is low visibility in the overlap between Capri and Tapestry. We
expect management teams to remain separated as brands should be
operated independently (LVMH case study). However, we expect
significant cost synergies from overhead costs by combining
distribution facilities on a global scale.
4) Marketing Costs Shared marketing costs 0.50% 2.00% 3.50%
Market power synergies: benefit from bargaining power with
emplacements, fashion magazines, wholesalers and real estate third
parties.
5) Share Distribution ChannelsShare distribution
relationships0.50% 2.00% 3.50%
E-commerce penetration: Tapestry can keep customers at the center
of their strategy by pressing forward with digital initiatives and
quickly�and�efficiently�scaling�Coach�and�Kate�Spade’s�omni-channel
presence by leveraging Michael Kors expertise in e-commerce.
6) Geographic ExpansionShare geographic
relationships0.50% 2.00% 3.50%
Leverage Coach expertise to increase Michael Kors and Kate Spade
exposure to China and Asian markets (which make up at least 45% of
the market in 2025).
Strictly Private & Confidential Page 29
Model OutputsPro-Forma Outputs
Strictly Private & Confidential Page 30
Sources & UsesBase Case Assumption of 60/40 Equity / Cash Consideration
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 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%
Sources
Uses
Strictly Private & Confidential Page 31
Comparable Companies AnalysisLack 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 32
Peer Leverage AnalysisPro-forma entity financed with 60/40 Equity/Debt will bring Net Debt / EBITDA roughly in line with peers
1.1x
1.6x1.7x 1.7x
1.9x
2.4x2.5x
2.0x
Ralph Lauren Marks &Spencer
LVMH Nordstrom Kering Tommy Hilfiger Richemont MergedCompany
Strictly Private & Confidential Page 33
Major Shareholder ConsiderationsBoth Entities Are Majority Owned By Institutional Passive Shareholders
Large Passive Shareholders Will Likely Follow Board Recommendation And Fairness Opinion, Which We Expect Will Be In Favour
� Board recommendation,
influenced by Michael Kors,
and advice from proxy
governing bodies
� Advice relies on conviction of
synergies and valuation
Voting
Considerations
Does premium
accurately
reflect value
� Passive investors will be granted a
premium above valuation and in
line with precedents.
� Proxy voting governance agencies
likely to advice voting in favour of
acquisition
� Equity consideration for long term
capital appreciation
Expected
Outcome
Vote in favour of
merger
� Direction for namesake
company and will his
considerable current control
continue
Voting
Considerations
Will I lose
considerable
control
� Capri could offer board seat so
Michael maintains influence
� Michael is a Fiduciary entrusted to
maximize shareholder value –
attractive premium and equity
upside maximize current
shareholder value
� Give Michael option to maintain
creative control of namesake brand
Tapestry
Strategic
Actions
Board seat,
synergy
conviction and
fiduciary