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Report: Burberry and Coach to Merge?

Burberry shares rose as much as 4.8 percent after a report suggested that Coach is considering merging with the British megabrand.
Source: Burberry
By
  • BoF Team

LONDON, United Kingdom — Coach is considering merging with Burberry, according to a report on financial blog Betaville today.

Coach has been working with financial advisers at Evercore for several weeks on a possible deal, the website said, citing two people familiar with the situation it didn’t name.

Burberry Group Plc shares rose as much as 4.8 percent following the report.

Earlier this year, the Financial Times reported that Burberry asked its advisers at Robey Warshaw to help prepare a defense for a possible bid.

"Burberry could indeed be seen as the British Coach, as we as analysts had pointed out years ago," said Luca Solca, head of luxury goods at Exane BNP Paribas, in an email. "Yet, contrary to Coach, most of the efforts at Burberry in the past 20 years have gone in the direction of elevating the brand and moving it into mega-brand price territory, rather than squarely into accessible luxury.

"A more aggressive commercial strategy could be that of running Burberry harder - the 'American way,'" Solca continued. "As promising as this looks short-term, this would increase the risk of future brand trivialisation and compromise long-term growth and valuation multiples. We have seen this meteoric trajectory at work several times already, at Coach, Michael Kors and Abercrombie & Fitch."

In Solca's opinion, however, a merger would not benefit either brand. "A merger of Coach and Burberry would primarily be a merger of problems," he said. "M&A history in luxury has shown that mergers don't obviously help in regaining brand traction and desirability, while cost efficiency in the face of declining brand momentum are often just a way to run in order to stand still."

Both Coach and Burberry declined to comment.

Update, 23rd October: Coach and Burberry are not in active merger talks, according to recent reports. Citing sources familiar with the matter, Reuters reported that suggestions that the two fashion companies were considering a merger were speculative.

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