Coach made it official today, purchasing competing U.S.-based handbag company Kate Spade New York for $2.4 billion. Coach said it’s paying $18.50 per share for Kate Spade, which is close to 30 percent higher than the stock was priced in late December 2016 when rumors of a possible sale first surfaced. In February 2017, Kate Spade officially let it be known it was seeking “strategic alternatives” aka looking for a buyer.
In speaking on the purchase, Coach CEO, Victor Luis, described it as attractive because of its connection with a more youthful customer. “Kate Spade has a truly unique and differentiated brand positioning with a broad lifestyle assortment and strong awareness among consumers, especially millennials,” said Luis.
Kate Spade has long been viewed by the investment community as a solid brand that would do better if it had a better management team. Conversely, Coach is admired for its top-notch ability to run a business so this purchase should go over well with investors. Over the past few months, various rumors have surfaced over what companies were in the hunt (including Kors) with resistance to pulling the trigger coming from the high price tag.
The deal will close some time in the second half of the year. While this may be good news for investors, it’s probably scary news for Kate Spade employees because there will be layoffs, or as Coach describes them “operational efficiencies,” a nice way to say that when staffs are combined, not everyone will be needed.