Kate Spade (KATE) to be acquired by Coach (COH) for $18.50/share or $2.4 bln

   

 

Kate Spade agrees to be acquired by Coach (COH) for $18.50/share in cash, or approximately $2.4 bln (KATE) :

Coach (COH) announced it has signed a definitive agreement to acquire Kate Spade & Company. Under the terms of the transaction Kate Spade shareholders will receive $18.50 per share in cash for a total transaction value of $2.4 billion. The transaction represents a 27.5% percent premium to the unaffected closing price of Kate Spade's shares as of December 27, 2016, the last trading day prior to media speculation of a transaction. The transaction has been unanimously approved by the Boards of Directors of Kate Spade & Company and Coach, Inc.

• The combination of Coach, Inc. and Kate Spade & Company will create a leading luxury lifestyle company with a more diverse multi-brand portfolio supported by significant expertise in handbag design, merchandising, supply chain and retail operations as well as solid financial acumen. Coach is focused on preserving Kate Spade's brand independence as well as retaining key talent, ensuring a smooth transition to Coach, Inc.'s ownership.
• The acquisition is expected to be accretive in fiscal 2018 and reach double-digit accretion by fiscal 2019 on a non-GAAP basis
• The transaction is not subject to a financing condition. Coach has secured committed bridge financing from BofA Merrill Lynch. The $2.4 billion purchase price is expected to be funded by a combination of senior notes, bank term loans and approximately $1.2 billion of excess Coach cash, a portion of which will be used to repay an expected $800 million 6-month term loan. The transaction is expected to close in the third quarter of calendar 2017.

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Kate Spade in 2004


Kate with husband Andy Spade and brother David Spade in 2001

Kate Spade and Andy Spade in 2016

Neiman Marcus purchased 56 percent of the company in 1999 and the remaining 44 percent by 2006, at which time Kate left the business to raise her daughter.

Andy continued to work with brands including Target, J.Crew and Warby Parker.

By 2006, the company was valued at $125 million, and Kate left for good the following year after Neiman sold Kate Spade & Co to Liz Claiborne that same year.


In the decade since she sold her ownership Kate Spade has continued to grow, and in 2017 the brand was purchased by Coach for $2.4 billion.

*** charts before acquisition ***

 

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Coach is in the midst of both an image and business makeover. In 2014, Stuart Vevers, formerly of Loewe and Mulberry, was brought in as the brand's new executive creative director, and was charged with emphasizing the brand's history of luxury and establishing he brand as a ready-to-wear clothing player as well. In conjunction, the brand also decided to greatly pull back on the amount of merchandise it sold at midlevel department stores, and put more of an emphasis on its own retail and online sales efforts. Selena Gomez was also brought in as the new face of the brand after singing a deal rumored to be worth $10 million. Indeed, Gomez showed up in a custom Coach gown at last week's Met Gala.

Meanwhile, Coach's business plans now extend beyond its namesake brand. In addition to the Kate Spade acquisition, the company also most recently purchased Stuart Weitzman in January 2015 for $574 million.

Luxury conglomerates are par for the course in Europe. French companies LVMH and Kering combined own a murderer's row of luxury fashion brands, but an American company has never matched that fire power. Sure, PVH Corp. owns both Calvin Klein and Tommy Hilfiger, but their portfolio isn't completely dedicated to luxury. Coach is now quite open about being the first American company to take a page out of that French fashion business playbook and consolidating familiar luxury brands under one ownership group.