Bill Gross, the co-founder and former chief investment officer of Pacific Investment Management Co., is standing firm in his belief in Capri Holdings Ltd., the parent company of Michael Kors. Despite concerns over the regulatory approval of a proposed takeover, Gross remains optimistic about the merger.

Gross, known for his successful merger-arbitrage strategy, initially expressed his confidence in Capri as a “best bet” in October. However, the stock started to decline in November, reaching a low of $46.59. This decline widened the gap below the takeover offer of $57 by Tapestry Inc., the owner of Coach. The Federal Trade Commission’s request for additional information further fueled doubts about the deal. Additionally, Capri’s weaker-than-expected earnings and a slump in luxury brand spending have contributed to the reassessment of the company’s standalone value.

Despite these challenges, Gross believes that the merger will ultimately succeed. He believes that the luxury brand industry is relatively safe and less susceptible to tough antitrust reviews compared to high-tech combinations. Gross’s history of successful merger-arb investments, including the sale of Activision Blizzard Inc. to Microsoft Corp., Pfizer Inc.’s purchase of Seagen Inc., and VMware Inc.’s acquisition by Broadcom Inc., further bolsters his confidence in Capri’s future.

The market-implied probability of the Capri-Tapestry merger succeeding is currently estimated to be around 85%. According to Cabot Henderson, a merger-arb specialist at Jones Trading, if the deal fails, the stock is expected to drop to $28 to $29. Gross’s unwavering support for Capri highlights his conviction in the potential success of the merger, despite lingering doubts in the market.

In addition to his views on mergers, Gross also expressed his belief that 10-year US debt is overvalued this week. His insights and notable investments have earned him respect in the financial world. While the outcome of the Capri-Tapestry merger remains uncertain, Gross’s wager on the deal demonstrates his unwavering confidence in the company’s future.

Useful links:
Capri Holdings official website
Jones Trading official website