NEW YORK CITY — Coach Inc. (NYSE: COH) has agreed to acquire Kate Spade & Co. (NYSE: KATE) for $18.50 per share in cash for a total transaction value of $2.4 billion.
The acquisition is an important step in Coach’s evolution, according to Victor Luis, CEO of Coach.
“Kate Spade has a truly unique and differentiated brand positioning with a broad lifestyle assortment and strong awareness among consumers, especially millennials,” says Luis. “Through this acquisition, we will create the first New York-based house of modern luxury lifestyle brands, defined by authentic, distinctive products and fashion innovation.”
Coach expects the combined company to realize $50 million in savings through improved efficiencies, scale, inventory management and supply chain optimization, according to Kevin Wills, CFO of Coach.
So far, the deal looks promising for Coach as shares of its stock closed at $45.20 per share on Tuesday, May 9, the highest mark since 2014. Shares of Kate Spade stock also jumped post-announcement, closing at $18.40 on Tuesday, up from $16.97 on Friday, May 5.
Yesterday, Goldman Sachs raised Coach’s rating to buy from neutral.
BofA Merrill Lynch is providing bridge financing to Coach for the acquisition. Coach plans to pay the $2.4 billion purchase price through a combination of senior notes, bank term loans and approximately $1.2 billion of cash, a portion of which will be used to repay an $800 million six-month term loan. The transaction is expected to close in the third quarter of 2017.
Evercore Group LLC is the financial advisor for Coach and the company’s legal advisor is Fried, Frank, Harris, Shriver & Jacobson LLP. Perella Weinberg Partners LP is the financial advisor for Kate Spade and the company’s legal advisor is Paul, Weiss, Rifkind, Wharton & Garrison LLP.
The companies could not immediately state the impact of the acquisition on the physical store locations.
— Kristin Hiller