The pair announced today that Coach will pay $18.50 per share in cash for Kate Spade, in a deal valued at $2.4 billion.
“Kate Spade has a truly unique and differentiated brand positioning, with a broad lifestyle assortment and strong awareness among consumers, especially millennials,” said Coach CEO Victor Luis in a release. “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.”
Reports of a Kate Spade buyout had swirled around for weeks before Kate Spade confirmed in February that it was indeed on the selling block. Coach, Michael Kors and a few private equity firms had reportedly showed interest in the brand over the past few weeks.
“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, multichannel lifestyle brand,” said Coach CEO Craig Leavitt in a statement.
In a presentation to investors today, Coach, which snapped up luxury footwear brand Stuart Weitzman in 2015, laid out a brand-repositioning plan for the Kate Spade label that focuses on boosting its relevance among millennials and scaling down on “brand-damaging” promotions.
“To ensure the long-term health of Kate Spade’s brand, we plan to reduce sales in the wholesale disposition and online flash sales channels,” Coach said in the presentation. “Similar to the steps Coach has taken over the last three years in pulling back from brand-damaging channels, we expect a near-term impact to Kate Spade’s profitability as we position the brand for sustainable growth.”
Other tenets of the repositioning plan include: product innovation, “optimizing” the Kate Spade store fleet and improvements to operational efficiencies such as inventory management and supply chain.
“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,” Luis said. “We are confident that this combination will strengthen our overall platform and provide an additional vehicle for driving long-term, sustainable growth.”
The deal is expected to close in early July 2017 — or Q3 — and the acquisition is expected to be accretive to earnings per share in fiscal 2018 on a non-GAAP basis. Coach said it expects to generate $50 million in annual savings within three years of the deal’s closing.
As of 10:35 a.m. ET, Coach shares were up 5.5 percent, to $45. Kate Spade shares gained more than 8 percent, to $18.36.