Analyzing the deal
Coach (COH), America’s leading luxury handbag and accessories maker, is buying close competitor Kate Spade & Company (KATE) for a total transaction value of $2.4 billion. On May 8, 2017, the company announced that it signed a definitive agreement to acquire Kate Spade for $18.50 per share in cash.
The deal represents a 9% premium to Kate Spade’s closing price the previous day and a 2.5% premium to the closing share price on December 27, 2016—the last trading day before media speculation about the transaction. Coach and Kate Spade’s board of directors unanimously approved the transaction.
While talking about the transaction, Victor Luis, Coach’s CEO, said, “Kate Spade has a truly unique and differentiated brand positioning with a broad lifestyle assortment and strong awareness among consumers, especially millennials. 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.”
Sale happens four months after media report
In February 2017, Kate Spade announced that it was conducting a strategic review of its business, which could result in a possible sale. In December 2016, the Wall Street Journal reported that Kate Spade was exploring sale possibilities.
Kate Spade’s weakening same-store sales had been a reason for concern for some time. Its reported sales comps of -2.4% in the last reported quarter. In contrast, Coach’s sales comps grew 3% in North America.
ETF investors seeking to add exposure to Kate Spade and Coach can consider the First Trust Consumer Discretionary AlphaDEX (FXD). FXD invests 0.6% and 0.54% of its portfolio in the two companies, respectively.
In the next part, we’ll discuss the deal in more detail.