The transaction has been unanimously approved by the Boards of Directors of Kate Spade & Company and Coach, Inc.
Financially too, because of similar nature of their businesses, the companies expect to realize cost synergies and operational efficiencies of close to $50 million over three years of closing the deal.
Kate Spade's stock surged more than 8 percent before the opening bell.
Kate Spade has a relatively small retail footprint and is expanding its e-commerce business, whereas Coach has its own strength in global operation and worldwide brand building.
Coach is paying $18.50 per share for Kate Spade.
Coach's acquisition of Kate Spade follows their successful purchase of Stuart Weitzman for $547 million.
Coach also expects the deal to be accretive to its fiscal 2018 results on a non-GAAP basis and reach double-digit accretion by the following year.
"Kate Spade has a truly unique and differentiated brand positioning with a broad lifestyle assortment and strong awareness among consumers, especially millennials", Coach CEO Victor Luis said in a statement Monday.
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Kate Spade recorded total sales of $1.37 billion over the last 12 months. Coach was trading Monday afternoon around $44.75 per share, up almost 5 percent.
Meanwhile, Coach's business plans now extend beyond its namesake brand.
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.
Reports of a Kate Spade buyout had swirled around for weeks before Kate Spade confirmed in February that it was indeed on the selling block.
"Kate Spade has created a very unique positioning in the marketplace - they own the emotional attributes around fashion that are connected with fun, fashionable and femininity that resonates both in the US but globally with consumers", Coach CEO Victor Luis told TheStreet in an interview.
"We are very excited that Kate Spade has strength with the millennial consumer", Luis told Reuters. Kate Spade gets about 15 percent of its sales from outside North America. 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.
Kate Spade & Co's financial adviser was Perella Weinberg Partners LP and its legal adviser was Paul, Weiss, Rifkind, Wharton & Garrison LLP.
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