The company announced Monday it reached a deal to acquire fellow American lifestyle brand Kate Spade New York for $2.4 billion. The transaction represents a 27.5 percent premium to Kate Spade's closing price on December 27, the day that reports about a possible sale first appeared.
Meanwhile, Coach CFO Kevin Wills, says the company expects to realise a run rate of about $50m in synergies within three years of the deal closing. Given the gap in brand awareness of Kate Spade relative to Coach, it is easy to see that the brand can grow significantly outside of the core United States and Japanese markets and even in the USA (80% of sales currently), and there are clear opportunities for growth in both full price and outlet locations.
Coach has also been linked to a possible purchase of United Kingdom luxury footwear and accessories brand Jimmy Choo which was recently put up for sales by its owner JAB Luxury.
Coach hopes to use its experience of global retail to grow Kate Spade's profile overseas. Additionally, in February, Kate Spade confirmed it was considering "strategic alternatives" for the company's future.
Coach's acquisition of Kate Spade follows their successful purchase of Stuart Weitzman for $547 million.
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.
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The company will finance the $2.4 billion Kate deal with $1.2 billion in cash (it had $1.9 billion as of the end of its most recent quarter) as well as senior notes and bank term loans.
Last month, Kate Spade stock was hit hard, plummeting close to 15 percent after news emerged that the deal had fallen through. Michael Kors, which also sells handbags, had been rumored to be in the hunt for Kate Spade at one point.
"The combination enhances our position in the attractive global premium handbag and accessories, footwear and outerwear categories, bringing product, brand positioning and customer diversification to the portfolio", said Coach Inc CEO Victor Luis in a statement.
In tune with Coach's turnaround strategy, which includes limiting discounts and distribution to regain its brand cachet, the company will cut back Kate Spade's sales to department stores and curb online flash sales while expanding the brand's presence in Asia and Europe.
Kate Spade hit the skids this year when it reported that sales decreased $3 million, or 1 percent, in the first quarter ended April 1, compared to the first quarter of 2016.
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