Coach acquires Kate Spade for $2.4 billion

Coach, Inc. a NY design house of modern luxury accessories and lifestyle brands, announced it has signed a definitive agreement to acquire Kate Spade & Company.

The statement said the deal represents a 27.5% premium over the closing price of the Kate Spade share on December 27, 2016 (before speculation on the record begins).

Coach chief financial officer Kevin Wills said the cost savings will allow Kate Spade to have fewer "online flash sales", a change that would help bolster the brand's image as maker of true luxury products. Millennials being their target market, Kate Spade has also adjusted its products to a more colorful and whimsical look, with subtle logos.

Kate Spade stock had slid 30 percent in the past year through Friday's close.

One of the world's leading fashion brands will soon be under new ownership.

A Kate Spade store stands in the SoHo neighborhood of Manhattan on May 8, 2017 in New York City. Unlike Coach and Michael Kors, which have been known for their loud logos and were slow to adapt to this small logo trend, Kate Spade bags include a tiny stamp with its brand name.

Meanwhile, Coach says it is focused on preserving Kate Spade's brand independence as well as retaining key talent in order to ensure a smooth transition.

The acquisition will add to earnings from fiscal 2018, and will lead to "double-digit accretion" by the following year, Coach said.

Both are fighting for customers in an incredibly shrinking U.S. handbag market, according to Customer Growth Partners, which says the market has shriveled to 2 percent annual growth from the must-have days of 15 percent in 2010, when Kate Spade was a rising darling in handbags.

Activist investor Caerus Investors sent a letter to Kate Spade in mid-November urging the company to sell itself, noting that the company traded at a discount to peers but that it had a solid market opportunity if the firm could shed its low-growth valuation.

Coach's acquisition of Kate Spade is its biggest deal yet, following the buyout of shoe maker Stuart Weitzman in 2015 in a deal valued up to 574 million dollars.

Coach's chief executive Victor Luis is aiming to create a multi-name fashion house and said Kate Spade was popular with millennials.

Bloomberg suggests that the deal speaks to the "handbag industry's broader woes": "Companies have struggled to get customers to pay full price, and a reliance on the beleaguered department-store channel has hurt sales". The companies expect the transaction to close in the September quarter of the current year.

  • Zachary Reyes