Kate Spade's stock soars after $2.4 billion Coach buyout deal

Shares of Kate Spade jumped more than 8 percent higher in premarket trading Monday following this announcement.

The acquisition, which is expected to close in the third quarter of the year, has already received unanimous approval from the boards of both companies.

Coach chief executive officer Victor Luis said: "Kate Spade has a truly unique and differentiated brand positioning with a broad lifestyle assortment and strong awareness among consumers, especially millennials".

Coach said it can achieve cost savings of about £38.6 million in synergies within three years of the deal closing, partly by cutting the amount sold on discount to protect its luxury image.

"To ensure the long-term health of Kate Spade's brand, we plan to reduce sales in the wholesale disposition and online flash sales channels", Coach said in the presentation.

Kate Spade shares climbed as much as 8.4 per cent to US$18.40 in NY yesterday, 10 U.S. cents below the offer price.

Mr. Luis concluded, "The acquisition of Kate Spade is an important step in Coach's evolution as a customer-focused, multi-brand organization".

Neil Saunders, managing director of GlobalData Retail, noted that while he is positive about Coach's move on Kate Spade, successful execution will require a degree of separation between the two businesses.

Coach recently restructured its c-suite to reflect its new holding company strategy, among other things hiring a separate CEO for the Coach brand.

"Kate Spade has created a very unique positioning in the marketplace - they own the emotional attributes around fashion that are connected with fun, fashionable and femininity that resonates both in the US but globally with consumers", Coach CEO Victor Luis told TheStreet in an interview.

In 2015, Coach bought designer footwear company Stuart Weitzman for as much as $574 million, at a time when handbag sales were particularly weak and competition was strengthening.

The takeover price is 27.5 per cent above Kate Spade's close on December 27, the day that reports about a possible sale first appeared.

Coach said it had identified global expansion opportunity through opening Kate Spade specialty stores.

The move to acquire Kate Spade stemmed mostly from the decreasing amount of customers who are willing to purchase Coach products at full price. It's been an uphill climb for the company, though it is seeing some traction and may now be better-positioned to take on more brands. Some of its recent executive appointments like that of Joshua Schulman, former president of Neiman Marcus Group's iconic Bergdorf Goodman store, to drive the Coach brand was one such.

  • Zachary Reyes