Sunday, January 4, 2015

Michael Kors: Why Investors Sale Could Be Good News

Shares of Michael Kors Holdings (KORS) have fallen 4% to $76.77 at 12:55 p.m. today after a founding investor sold its remaining stake in the company. Wells Fargo’s Paul Lejuez and team think the sale might be good news for Kors:


KORS announced that majority shareholder Sportswear Holdings Ltd (SHL) will be selling their remaining 11.7MM shares or 6% stake in the company. SHL owners Silas Chou and Lawrence Stroll will be retiring from the board. SHL was a founder of KORS and also sold about 20% of their stake in the IPO and another roughly 25% prior to the most recent announcement, so this is not entirely unexpected. While typically viewed as a negative when insiders sell their entire stake, it may also help the company gain more independence on its board (and may avoid conflicts of interest if/when the company repurchases its China business)…

SHL, Michael Kors himself, and CEO John Idol jointly own KORS' license right in greater China (the entity is called Far East Holdings). At some point, it is likely that KORS will buyback this license and operate directly owned stores in China. Although there are formulas in place to help determine a fair price when the time comes, with SHL's owners Chou and Stroll no longer on KORS' board (and replaced by independent directors), there are fewer conflicts of interest, and it seems less likely the price paid will be biased (to be too high).

After today’s drop, shares of Kors have fallen 5.4% in 2014.

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