Coach To Buy Kate Spade For $2.4 Billion

Models at a Kate Spade presentation

Models at a Kate Spade presentation

The combined company will create a "leading luxury lifestyle company" supported by "significant expertise in handbag design, merchandising, supply chain and retail operations", according to a statement. Coach announced Monday that it would be buying rival Kate Spade for $2.4 billion. With [yesterday's] announcement of a USD2.4bn all-cash bid for Kate Spade, the group will soon have three NY based brands catering to consumers looking for affordable luxury with arguably limited consumer and retail overlaps: Coach, the large power brand renowned for functional leather goods; Kate Spade, the not-yet global fun/feminine/millennial proposition and Stuart Weitzman on an edgier footwear-driven positioning.

Victor Luis, CEO of Coach, in a statement touted the company's experience operating retail stores around the world and brand building in foreign markets, saying it would be poised to tap Kate Spade's potential for global expansion. "We are confident this combination will strengthen our overall platform and provide an additional vehicle for driving long-term, sustainable growth".

Coach acquired footwear brand Stuart Weitzman for $574 million in 2015, and its results in subsequent quarters have been boosted by stronger-than-expected sales from the footwear company.

A Coach store stands in the SoHo neighborhood of Manhattan on May 8, 2017 in New York City.

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. Kate Spade shares closed Friday at $16.97.

Further, the analyst pointed out that owning multiple brands allows a company like Coach to "grow and succeed, even when a brand is missing a trend".

M&A rumors had already stirring at the time, with reports surfacing that in addition to Kate Spade, Coach was considering an acquisition of luxury shoe manufacturer Jimmy Choo. We continue to believe KATE has a long global growth runway ahead with opportunities for store growth overseas, further expansion into non-handbag categories, and supply + digital synergy potential ...

Coach's financial adviser was Evercore Group L.L.C. and its legal adviser was Fried, Frank, Harris, Shriver & Jacobson LLP. Additionally, in February, Kate Spade confirmed it was considering "strategic alternatives" for the company's future.

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