Bill Gross maintains confidence in his Capri Holdings Ltd. investment, expressing optimism about the success of Tapestry Inc.’s proposed takeover of the parent company of Michael Kors. Despite market concerns regarding regulatory approval, Gross remains resolute in his merger-arbitrage strategy.
In a recent social media post on platform X, the co-founder and former chief investment officer of Pacific Investment Management Co. asserted, «I still favor CPRI for a merger arb.» This strategic move aligns with Gross’s belief in the positive outcome of Tapestry Inc.’s August cash offer to acquire Capri at $57 per share.
While Tapestry’s offer stands, Capri’s stock is currently trading at around $50, indicating a roughly 12% discount from the proposed acquisition price. This discount reflects market skepticism and raises uncertainties about the smooth progression of the $8.5 billion transaction through regulatory channels.
Gross, renowned for identifying arbitrage opportunities, previously designated Capri as one of his «best bets» in arbitrage situations in an October outlook. However, the shares experienced a decline in November, reaching as low as $46.59, with the gap below the takeover offer widening to over $10—the widest since the deal announcement.
This decline coincided with the Federal Trade Commission’s request for additional information, part of an investigation into the deal. Additionally, weaker-than-expected earnings from Capri prompted traders to reevaluate the standalone value of the company.
Despite the uncertainties, Gross’s confidence in the merger remains steadfast. In October, he highlighted the deal’s relative safety within the industry, emphasizing its lower likelihood of facing challenging antitrust reviews compared to high-tech combinations. Gross characterized it as the best example of a sizable discount on a deal expected to close within six to nine months.
With the market-implied probability of the deal succeeding hovering around 85%, according to merger-arb specialist Cabot Henderson, Gross’s commitment to the merger-arb strategy remains unwavering. This aligns with his belief that such investments offer resilience, with performance not necessarily correlated with economic or stock market conditions.
Gross’s track record includes successful merger-arb wagers, such as the sale of video game-maker Activision Blizzard Inc. to Microsoft Corp., Pfizer Inc.’s acquisition of Seagen Inc., and software maker VMware Inc.’s purchase by Broadcom Inc.
