After rumours first surfaced in December, Luxury brand Coach has announced it is buying Kate Spade & Co for $2.4 billion USD or $18.50 USD per share. CFO of Coach, Kevin Wills explained that the synergies between the two brands should bring $50 million USD in cost savings three years after the deal is settled and most likely in the third quarter. Analysts added that the $2.4 billion price tag is in Coach's favour. The deal will improve scale and inventory management and streamline Kate Spade's supply chain. “Coach has recently run the ruler over a number of businesses including Burberry and Jimmy Choo. In our view, this deal is sensible both in terms of the brand fit and the premium that Coach is paying,” said Neil Saunders, MD of GlobalData Retail. He added that Kate Spade has significant potential because it is in the early stages of developing its own lifestyle brand and entering new product areas. Kate Spade's audience is much younger than Coach who has had some difficulty attracting the younger consumer. The new acquisition also allows Coach to expand its customer base and Saunders added that it prevents the Kate Spade brand falling into the hands of a rival like Michael Kors.
"Current management has made good progress, but we believe that Coach can add further value on the sourcing and distribution side, as well as some fresh thinking on the design front. It can also bring its experience of reinvigorating a brand to some aspects of Kate Spade’s operation which, over recent quarters, have become too reliant on discounting and promotions," said Saunders. "There will be reasonable scope for synergistic savings which, in addition to the sales benefits, will help Coach to generate a good return on investment." Saunders explained that ultimately Coach wants to become a business with a portfolio of distinct and compelling luxury brands.
However, founders Kate Spade and her husband Andy Spade will not see a penny of the sale as they cashed out more than a decade ago in 2006. Spade launched her brand in 1993 and by 1998, annual revenues had reached $27 million USD. In 1999, the duo sold 56 percent of the company to Neiman Marcus for $34 million USD and 44 percent to Neiman in 2006 for $59 million USD. A week after the second acquisition, Neiman Marcus offloaded the entire company to Liz Claiborne for $124 million USD including debt.
