BERLIN • Coach Inc agreed to buy rival handbag maker Kate Spade & Co for US$2.4 billion (S$3.4 billion) following months of talks, helping the luxury brand cope with an industry racked by deep discounting and sluggish demand.
The US$18.50-a-share transaction represents a premium to Kate Spade's price when deal speculation first surfaced in December, but it is well below the amount investors were betting on in more recent months.
The long-anticipated deal brings a high-profile brand to Coach and may help remedy the handbag industry's broader woes. The companies have struggled to get customers to pay full price, and a reliance on the beleaguered department-store channel has hurt sales. That has led Coach to focus more on its own speciality stores, an area where it hopes to use Kate Spade to fuel growth.
"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," Mr Victor Luis, chief executive officer of Coach, said in a statement.
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The takeover price is 27.5 per cent above Kate Spade's closing price on Dec 27, the day that reports about a possible sale first appeared. As deal speculation raged in February, the shares climbed above US$24, a sign investors expected to get a much richer price than they ultimately received.
Kate Spade shares climbed as much as 12 per cent to US$18.95 in early trading in New York. The stock had slid 30 per cent in the past year through Friday's close.
Kate Spade investor Caerus Investors had pushed the fashion house to put itself up for sale. The investment firm said that while the company was generating solid growth, it needs better management to help boost its profit margins.
Coach plans to finance the deal, which it expects will close in the third quarter, with senior notes, bank term loans and about US$1.2 billion of cash, according to the statement.
Coach chief financial officer Kevin Wills said the complementary nature of the businesses should bring US$50 million in cost savings in three years after the deal closes. The idea is to improve scale and inventory management, as well as streamline Kate Spade's supply chain.
The acquisition will add to earnings from fiscal 2018, and lead to "double-digit accretion" by the following year, Coach said.