Coach’s bling fling, will spend $2.4B on Kate Spade

Coach sales hit a peak during its heyday in 2013, but the brand lost some of its luster and revenue slumped in 2014 and 2015.

The New York-based handbag maker is set to take over Kate Spade in a deal worth $2.4 billion, with Coach offering $18.50 a share for the company.

As of 10:35 a.m. ET, Coach shares were up 5.5 percent, to $45.

Shoppers leave a Kate Spade store in New York, Monday, May 8, 2017. Since autumn past year, he has been saying Coach is on the lookout for “great brands”, and media reports had mentioned British fashion house Burberry Group and high-end shoemaker Jimmy Choo, in addition to Kate Spade, as potential targets.

Handbag maker Coach Inc. has been looking for an acquisition for months now, as it looks to turn around its business in the ever-slow handbag market.

Coach is paying $18.50 per share for Kate Spade.

Over the past decade, Coach has also expanded on the digital front being one of the earliest Western luxury brands to launch a flagship store on Alibaba’s Tmall, the country’s biggest e-commerce platform. But to power future growth, it’s begun to build an empire of luxury brands. The deal comes after Coach’s $547 million acquisition of Stuart Weitzman, a designer shoe company.

Before anyone had a chance to voice their displeasure, Coach CEO Victor Luis noted that Kate Spade will remain an independent brand. “The combination enhances our positon in the attractive global premium handbag and accessories, footwear and outerwear categories”. “It is also the case that the main Coach brand, while in much better health, still needs much nurturing and care in a very tough environment; as such the company will need to keep a dual focus on both its new and established businesses”.

The stock has risen 17% since December 27, a day before the Wall Street Journal reported the company was looking to sell itself. The idea is to improve scale and inventory management, as well as streamline Kate Spade’s supply chain.

He is banking on Kate Spade’s appeal with millennials. Coach has worked its way out of considerable doldrums to reclaim its place as a more upscale accessories retailer after heavy discounts and outlets sales damaged its margins as well as its brand. Either circumstance would require Kate Spade to pay Coach an $83.3 million termination fee.

As of Friday’s close, shares of Coach have risen almost 7 percent over the past 12 months and are up about 22 percent for the year-to-date period.