How Smart Was Michael Kors to Buy Versace?

In this segment from Motley Fool Money, host Chris Hill and analysts David Kretzmann, Seth Jayson, and Jason Moser are a bit conflicted over the $2.1 billion purchase of luxury brand Versace by Michael Kors (NYSE: KORS). The post-merger forecast looks overly optimistic, but the Fools think the deal still makes some sense.

A full transcript follows the video.

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This video was recorded on Sept. 28, 2018.

Chris Hill: Busy week from Michael Kors. The handbag maker is buying luxury brand Gianni Versace for $2.1 billion. After the deal closes, Michael Kors is changing its name to Capri Holdings. I think we've seen this movie before with Coach and Tapestry.

Seth Jayson: Yeah. It's a thing in Europe, a lot of the larger brands are conglomerated together into a few big names. The last I remember of Michael Kors is back when they were struggling a little. They seem to have recovered a bit from that. Not growing like gangbusters anymore, but at least not squeezing down. The Versace deal looks like it makes decent sense. It pains me to say that, because Versace clothes are just horrific.

Jason Moser: Oh, here come the emails!

Jayson: Versace does about $850 million. But the investor deck, if I'd seen the investor deck first, I would have been horrified. It has magical thinking. Here, you see somebody wearing their Baroque/ rock and roll --

Hill: You know this is a radio show, right?

Jayson: I'm holding it up, it's for you guys here. The current revenues are $850 million. Then there's just a line up to $2 billion, and underneath that, it says, "Future." [laughs] I'm not so sure --

Hill: Is that like South Park and the underpants gnome?

Jayson: It is a little bit.

Hill: Step one, collect underpants. Step two... Step three, profit.

Jayson: They have more of them where they just say, "Here's what we'll do." But the fact is, Kors is doing OK. They could use a little bit more exposure in Europe. This will get them there. I think the businesses are close enough, there probably will be some synergies they can squeeze out of this. It actually looks like it makes pretty good sense.

Chris Hill has no position in any of the stocks mentioned. Jason Moser has no position in any of the stocks mentioned. Seth Jayson has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends TPR. The Motley Fool owns shares of Michael Kors Holdings. The Motley Fool has a disclosure policy.