Coach Inc. the famous maker of handbags announced that it would acquire Kate Spade & Co. at a price of $2.4 billion looking to tap into the popularity of the quirky totes and satchels of its smaller rival, amongst millennials.
The per share price of $18.50 in cash is a 9% premium to the Friday closing price of Kate Spade. Stock at Kate Spade traded at $18.35 prior to Monday’s opening bell.
Shares have increased by 17% since late December, a day prior to an initial report that the business was trying to find a buyer.
In February, Kate Spade announced that it was looking at its strategic options, following the urging by Caerus Investors a hedge fund to sell the company citing the inability of management to achieve its profit margins in comparison to peers in the industry.
Handbags at Kate Spade have been popular amongst millennials because of subtle logos and colorful and quirky designs including some bags shaped like cars and cats.
However, the company, similar to other makers of luxury handbags, has struggled to maintain market expectations amidst competition and a falloff in department store traffic.
Coach has looked for an acquisition according to a number of reports, as it looked to turn its business around in the handbag market.
Kate Spade would have to have more time negotiating a sale after it received an offer from Coach, said a report released in April by an international news agency.
Coach is expecting savings of close to $50 million within a three-year period of the deal closing.
The purchase price of $2.4 billion will be funded 50% in cash and 50% in debt, said company officials at Coach. This deal is not subject to financing conditions.
The deal should close, said Coach, during the 2017 third quarter and add to its adjusted earnings during its fiscal 2018.
Financial adviser for Coach was Evercore Group and the company used Fried, Frank, Shriver, Harris and Jacobsen as its legal adviser.
The retail industry is going through a difficult time. Shoppers across the U.S. have shifted their shopping habits from visiting malls and department stores to shopping from the comfort of home on the Internet.
E-commerce has changed the landscape of retail and stores have had to try to adjust to that change while trying to also become competitive in the online retail industry at the same time.