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Coach, Inc. to acquire Kate Spade & Co. for 2.4 billion USD

By Vivian Hendriksz

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Business |BREAKING

London - Coach, Inc. has finally bit the bullet as the US accessories and lifestyle label announced Monday morning it is set to acquire handbag and accessories designer brand Kate Spade & Company. The confirmation of the acquisition sees Kate Spade & Co. combining forces with Coach to from the first New York-based 'House of Modern Lifestyle Brands.'

The New York design house has signed an agreement to take over Kate Spade & Co. for 18.50 USD per share in cash, in a deal valued at 2.4 billion USD (1.85 billion pounds). The signed deal sees Coach paying more than the previous estimate price tag of 2 billion USD (1.54 billion pounds). The transaction represents a 27.5 percent premium on the closing price of Kate Spade's shares on December 27, 2016 - the last day before media speculation concerning the take over took over the news headlines.

Coach confirms takeover of Kate Spade & Co.

"Kate Spade has a truly unique and differentiated brand positioning with a broad lifestyle assortment and strong awareness among consumers, especially millennials," said Victor Luis, Chief Executive Officer of Coach, Inc in a statement. "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 speciality retail stores globally, and brand building in international markets can unlock Kate Spade’s largely untapped global growth potential. We are confident that this combination will strengthen our overall platform and provide an additional vehicle for driving long-term, sustainable growth."

"Following a thorough review of strategic alternatives, reaching an agreement to join Coach’s portfolio of global brands will maximize value for our shareholders and positions Kate Spade for long-term success as we continue our evolution into a powerful, global, multi-channel lifestyle brand," added Craig A. Leavitt, Chief Executive Officer of Kate Spade & Company. "We look forward to working with Coach’s leadership team to leverage their expertise across the business as we continue to innovate and build long-term loyalty with consumers and expand across our product category and geographic axes of growth."

In addition, the new acquisition is set to add adjusted earnings in fiscal 2018 for Coach, reports the company. The lifestyle brand also expects to achieve approximately 50 million USD ib savings within three years of closing the deal through operational efficiencies, improved scale and inventory management, together with the optimization of Kate Spade's supply chian network. "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," added Kevin Wills, Coach’s Chief Financial Officer.

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"Therefore, the reduction in profitability from the pullback in these channels will be offset by the realization of these substantial synergies. As a result, we expect that the acquisition will be accretive in fiscal 2018 on a non-GAAP basis, and will reach double-digit accretion by fiscal 2019, also on a non-GAAP basis." The combination of Coach and Kate Spade & Co. sees the former company using its heritage, international distribution model and leadership team to drive long-term sustainable growth for the latter. However Coach maintains it will focus on preserving Kate Spade's brand independence, and retain key talen and leadership members to ensure a smooth transition to Coach. The agreement is set to close by the third quarter of 2017, and is subject to customary closing conditions.

"The acquisition of Kate Spade is an important step in Coach’s evolution as a customer-focused, multi-brand organization," concluded Louis. "The combination enhances our position in the attractive global premium handbag and accessories, footwear and outerwear categories, bringing product, brand positioning and customer diversification to the portfolio, and establishing scale in key functions with the resources to invest in talent and innovation. In addition, we believe the Kate Spade brand will benefit from our best-in-class supply chain and strong corporate infrastructure."

Photo: Coach website

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