Skip to main content
BoF Logo

The Business of Fashion

Agenda-setting intelligence, analysis and advice for the global fashion community.

Coach to Buy Kate Spade for $2.4 Billion

After much speculation, handbag maker Coach Inc said it would buy Kate Spade & Co for $2.4 billion as it looks to tap the smaller rival's popularity among millennials.
A Kate Spade store in Las Vegas, Nevada | Source: Shutterstock
By
  • Reuters

NEW YORK, United States — Handbag maker Coach Inc said it would buy Kate Spade & Co for $2.4 billion (£1.85 billion) as it looks to tap the popularity of its smaller rival's quirky satchels and totes among millennials.

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 $18.34 in morning trading on Monday, while Coach was up 6 percent at $45.25.

Kate Spade's shares have risen 17 percent since Dec. 27, a day before the first report 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 colourful designs, including bags shaped like cats and cars.

ADVERTISEMENT

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.

"(Kate Spade) allows us to go after a new customer segment," Coach Inc chief executive Victor Luis said on a conference call.

Luis said Kate Spade's popularity among millennial consumers, not only in the United States but also in Europe and Asia, was what Coach found attractive.

About 60 percent of Kate Spade's customers are millennials, Coach said. Kate Spade gets about 15 percent of its sales from outside North America.

In tune with Coach's turnaround strategy, which includes limiting discounts and distribution to regain its brand cachet, the company will cut back Kate Spade's sales to department stores and curb online flash sales while expanding the brand's presence in Asia and Europe.

Analysts called Kate Spade a good fit for Coach.

"We like the complementary product assortments, complementary customer bases, potential for synergies," Robert W. Baird & Co analyst Mark Altschwager wrote in a note.

COACH IN THE MARKET

ADVERTISEMENT

Coach, which has been looking for an acquisition for months, said it expects to save $50 million in savings within three years of the closing the deal.

The deal comes two months after Kate Spade said it was exploring strategic options. Hedge fund Caerus Investors had urged the company in November to sell itself citing the management's inability to achieve profit margins comparable to industry peers.

Reuters reported in April that Kate Spade would need more time to negotiate a sale after receiving an offer from Coach.

The deal, which is not subject to any financing condition, is expected to close in the third quarter of 2017 and add to adjusted earnings in fiscal 2018.

Coach's financial adviser was Evercore Group and its legal adviser was Fried, Frank, Harris, Shriver & Jacobson LLP.

Kate Spade was advised by Perella Weinberg Partners LP, while Paul, Weiss, Rifkind, Wharton & Garrison LLP was its legal adviser.

By Sruthi Ramakrishnan; editor: Saumyadeb Chakrabarty.

Related Articles:

Coach Said to Be Readying Kate Spade BuyOpens in new window ]

Kors vs. Coach: Which is Best Positioned to Buy Kate Spade?Opens in new window ]

Kate Spade Is Dragging Its Heels on a DealOpens in new window ]

In This Article

© 2024 The Business of Fashion. All rights reserved. For more information read our Terms & Conditions

More from News & Analysis
Fashion News, Analysis and Business Intelligence from the leading digital authority on the global fashion industry.
view more

Subscribe to the BoF Daily Digest

The essential daily round-up of fashion news, analysis, and breaking news alerts.

The Business of Fashion

Agenda-setting intelligence, analysis and advice for the global fashion community.
CONNECT WITH US ON
BoF Professional - How to Turn Data Into Meaningful Customer Connections
© 2024 The Business of Fashion. All rights reserved. For more information read our Terms & Conditions, Privacy Policy, Cookie Policy and Accessibility Statement.
BoF Professional - How to Turn Data Into Meaningful Customer Connections