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Coach Is Buying Kate Spade For $2.4 Billion |

Coach Is Buying Kate Spade For $2.4 Billion

(Photo credit: Pascal Le Segretain/Getty Images for Kate Spade New York)


Coach has agreed to purchase handbag and accessories company Kate Spade for $2.4 billion in a bid to accelerate its growth.

Under the terms of the deal announced on Monday, Kate Spade shareholders will receive $18.50 per share in cash. The transaction represents a 27.5% premium to Kate Spade’s shares before reports of a potential deal surfaced in December and a 9% premium to its last closing price.

Shares of Kate Spade surged 8% in pre-market trading, while shares of Coach were basically flat.

The acquisition will give Coach ownership of a smaller handbag and accessories rival with a strong Millennial following. Kate Spade also has a growing lifestyle business and in recent years has introduced products like bedding and kitchen accessories.

Coach CEO Victor Luis said he planned to “unlock Kate Spade’s largely untapped global growth potential” and that the acquisition provides “an additional vehicle for driving long-term, sustainable growth.”

Kate Spade, which acknowledged earlier this year that it was exploring its strategic alternatives, was seen as a good potential acquisition for Coach. The companies are both based in New York and have struggled to retain a sense of exclusivity in a retail environment plagued by constant discounting.

Coach has been running fewer promotions and pulling out of department stores like Macy’s and Lord Taylor as part of a concerted effort to sell more of is products at full price. It said it will seek to do the same with Kate Spade by reducing its online flash sales and wholesale presence.

Coach noted that it is focused on preserving Kate Spade’s brand independence and retaining key talent but didn’t offer specifics. It expects annual savings of $50 million within three years of the deal closing from various operational efficiencies, changes to inventory management and the optimization of the supply chain. 

The acquisition is expected to be accretive to adjusted earnings in fiscal 2018 and achieve double-digit accretion by fiscal 2019.

Coach’s decision to buy Kate Spade follows its successful acquisition of Stuart Weitzman, a designer shoe company for which it paid $574 million in 2015. It has helped to lift overall sales when Coach-branded products have struggled.

The Kate Spade deal has been unanimously approved by the boards of both companies and is expected to close in the third quarter of 2017, subject to the tender of a majority of outstanding Kate Spade shares and regulatory approval.

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