Handbag maker Coach Inc said it would buy Kate Spade & Co for $2.4 billion as it looks to tap the popularity of its smaller rival's quirky satchels and totes among millennials.
The $18.50 per share offer in cash represents a premium of 9 percent to Kate Spade's Friday close. Kate Spade's stock was trading at $18.34 in morning trading on Monday, while Coach was up 6 percent at $45.25.
Kate Spade's shares have risen 17 percent since Dec. 27, a day before the first report that the company was looking to sell itself.
Kate Spade's handbags have struck a chord with millennials due to their subtle logos and quirky and colorful designs, including bags shaped like cats and cars.
But the company, like other luxury handbag makers including Coach, has struggled to live up to market expectations amid fierce competition and a drop in traffic to department stores.
"(Kate Spade) allows us to go after a new customer segment," Coach Inc Chief Executive Victor Luis said on a conference call.
Luis said Kate Spade's popularity among millennial consumers, not only in the United States but also in Europe and Asia, was what Coach found attractive.
About 60 percent of Kate Spade's customers are millennials, Coach said. Kate Spade gets about 15 percent of its sales from outside North America.
In tune with Coach's turnaround strategy, which includes limiting discounts and distribution to regain its brand cachet, the company will cut back Kate Spade's sales to department stores and curb online flash sales while expanding the brand's presence in Asia and Europe.
Analysts called Kate Spade a good fit for Coach.
"We like the complementary product assortments, complementary customer bases, potential for synergies," Robert W. Baird & Co analyst Mark Altschwager wrote in a note.
COACH IN THE MARKET
Coach, which has been looking for an acquisition for months, said it expects to save $50 million in savings within three years of the closing the deal.
The deal comes two months after Kate Spade said it was exploring strategic options. Hedge fund Caerus Investors had urged the company in November to sell itself citing the management's inability to achieve profit margins comparable to industry peers.
Reuters reported in April that Kate Spade would need more time to negotiate a sale after receiving an offer from Coach.
The deal, which is not subject to any financing condition, is expected to close in the third quarter of 2017 and add to adjusted earnings in fiscal 2018.
Coach's financial adviser was Evercore Group and its legal adviser was Fried, Frank, Harris, Shriver & Jacobson LLP.
Kate Spade was advised by Perella Weinberg Partners LP, while Paul, Weiss, Rifkind, Wharton & Garrison LLP was its legal adviser.
Reuters
Mon May 08 2017
A model presents a creation from the Kate Spade Spring/Summer 2014 collection during New York Fashion Week September 6, 2013. REUTERS/ Eric Thayer
Freedom Flotilla to Gaza: Semua keperluan sudah dilengkapkan, kapal sedia belayar Jumaat ini - FFC
Ia termasuk keperluan teknikal dan 'crewing' yang merujuk kepada proses menyediakan dan menguruskan ahli kru.
Freedom Flotilla to Gaza: Ideologi Nelson Mandela wajar dicontohi dalam misi capai keamanan - Cucu
Menurut Manlda Mandela, datuknya pencinta keamanan dan bukan seorang pendendam walaupun selepas berjaya mengalahkan rejim apartheid.
Kontroversi UM: Bukan untuk sekat kebebasan universiti - Zambry
Kebebasan yang diberi perlu mengambil kira polisi serta pendirian kerajaan di samping sensitiviti masyarakat dan majoriti rakyat.
Pelan strategik pendigitalan akan dikemaskinikan selari transformasi digital - Wilson
Pelan strategik pendigitalan akan dikemaskinikan selari dengan transformasi digital, kata Timbalan Menteri Digital Datuk Wilson Ugak Kumbong.
Kekejaman zionis: Gaza lepasi ambang kebuluran enam minggu akan datang - WFP
Semenanjung Gaza bakal melepasi ambang kebuluran iaitu ketidakamanan makanan, kekurangan zat makanan dan kematian.
Kekejaman zionis: Halalkan penempatan haram di Tebing Barat berbahaya - A.S
Membenarkan penempatan haram di Tebing Barat akan menjadi tindakan berbahaya dan melulu.
JDT lancar jersi baharu bagi musim 2024
Jersi berwarna biru dan merah untuk beraksi di gelanggang keramat mereka manakala jersi berwarna putih untuk perlawanan di gelanggang lawan.
Kekejaman zionis: Israel langgar undang-undang antarabangsa - Badan pemantau
Sebuah kumpulan pemerhati dan pemantau berkata, Israel telah melanggar undang-undang antarabangsa dan hak asasi manusia di Gaza.
[LAPOR LANGSUNG] Gaza Freedom Flotilla: Cucu Nelson Mandela antara peserta misi bantuan
Penyertaannya dalam misi ini bagi sama-sama menyokong misi memecah sekatan rejim Israel bagi membolehkan penghantaran bantuan ke Gaza.
MYIPO sedia jaringan perlindungan, ayuh daftar sekarang
Tahap kesedaran masyarakat terutama komuniti industri perniagaan tempatan dalam mendaftar harta intelek masih rendah. Ketua Pengarah Perbadanan Harta Intelek Malaysia (MyIPO), Kamal Kormin, pendaftaran dibuat melalui perbadanan ini membolehkan syarikat serta pemilik entiti perniagaan mendapat jaringan keselamatan terutama dari segi perlindungan hak cipta serta pelbagai faedah lain.