Coach Inc. agreed to acquire rival Kate Spade & Co. for $2.4 billion as the handbag and accessories maker seeks to tap younger consumers amid slower growth in the handbag market.
Sruthi Ramakrishnan of Reuters had the news:
The $18.50 per share offer in cash represents a premium of 9 percent to Kate Spade’s Friday close. Kate Spade’s stock was trading at $18.36 on Monday, while Coach’s shares were up 5 percent at $44.80.
Kate Spade’s shares have risen 17 percent since Dec. 27, a day before reports emerged that the company was looking to sell itself.
Kate Spade’s handbags have struck a chord with millennials due to their subtle logos and quirky and colorful designs, including bags shaped like cats and cars.
But the company, like other luxury handbag makers including Coach, has struggled to live up to market expectations amid fierce competition and a drop in traffic to department stores.
Coach Chief Executive Victor Luis downplayed the slowdown in the handbag market.
Lauren Thomas of CNBC reports that shares of both companies jumped on the news:
Shares of Kate Spade closed more than 8 percent higher Monday following this announcement, while Coach’s stock ended the day up almost 5 percent.
” … this is a sensible deal both in terms of the brand fit and the premium that Coach is paying,” GlobalData Retail analyst Neil Saunders said in a statement about the transaction. “Ultimately the aim for Coach is to become a business with a portfolio of distinct and compelling luxury brands. Today’s announcement is the solid step on that journey.”
Coach has made no secret of its desire to create a global, multi-brand luxury company.
M&A rumors were already stirring last week, when Coach reportedbetter-than-expected earnings. There were reports surfacing that in addition to Kate Spade, Coach was considering an acquisition of luxury shoe manufacturer Jimmy Choo.
Earlier in the year, Kate Spade said it was actively considering strategic alternatives, and JAB Holding, the owner of Jimmy Choo, made a similar announcement about that brand recently.
Stephanie Hoi-Nga Wong of Bloomberg News reported that Kate Spade had an investor pushing for a sale:
Kate Spade shareholder Caerus Investors had pushed for a sale of the fashion house, which also offers housewares and clothing lines. The investment firm argued that while the company was generating solid growth, it needed better management to help boost its profit margins.
Caerus founder Ward Davis said in February that Kate Spade could be worth “in the high $20s or low $30s” per share, depending on the number of bidders. The investment firm declined to comment on Monday about the $18.50-a-share price.
Michael Kors Holdings Ltd., another upscale fashion brand, also expressed interest in Kate Spade, people familiar with the matter said earlier this year. But Kate Spade was unable to orchestrate a bidding war that could propel its price to the levels Caerus envisioned.
Perella Weinberg Partners LP advised Kate Spade on the transaction, while Evercore Group LLC assisted Coach.
Coach plans to finance the deal with senior notes, bank term loans and about $1.2 billion of cash, according to the statement. The New York-based company expects the purchase to be completed in the third quarter.