Coach has acquired a brand with a strong following among millennials.
The luxury handbag company on Monday announced that it will acquire Kate Spade & Company for $18.50 per share in cash, which represents a premium of 9% to Kate Spade's closing price on Friday. The deal, which has a total transaction value of $2.4 billion, is expected to close in the third quarter of 2017 and add to adjusted earnings in fiscal 2018.
Last week, Coach reported better-than-expected third quarter earnings amid rumors that it was considering buying not only Kate Spade but also luxury shoe maker Jimmy Choo in a move to accelerate growth.
In buying Kate Spade, which operates the kate spade new york and Jack Spade NewYork brands, Coach gains ownership of a brand with a strong following among younger consumers. Kate Spade also has a growing lifestyle business and has expanded to such other categories as bedding and kitchen accessories. (The company also owns Adelington Design Group, a private brand jewelry design and development group.)
“Kate Spade has a truly unique and differentiated brand positioning with a broad lifestyle assortment and strong awareness among consumers, especially millennials,” stated Coach CEO Victor Luis. “Through this acquisition, we will create the first New York-based house of modern luxury lifestyle brands, defined by authentic, distinctive products and fashion innovation. In addition, we believe Coach’s extensive experience in opening and operating specialty retail stores globally, and brand building in international markets, can unlock Kate Spade’s largely untapped global growth potential.”
The deal has been unanimously approved by the boards of both companies. Coach said expects to generate $50 million in annual savings in synergies within three years of the deal closing.
“These cost synergies will be realized through operational efficiencies, improved scale and inventory management, and the optimization of Kate Spade’s supply chain network,” said Kevin Wills, Coach’s CFO. “At the same time, to ensure the long-term viability and health of the Kate Spade brand, and similar to the steps Coach has itself taken over the last three years, we plan to reduce sales in Kate Spade’s wholesale disposition and online flash sales channels.”