Coach Launches Tender For Kate Spade As UBS, Deutsche Cheer Deal

Shares of Coach (COH) and Kate Spade (KATE) are in focus after Coach officially launched its tender offer for Kate Spade for $18.50 per share in cash. The $2.4B deal was announced earlier this month.

TENDER OFFER: Coach announced this morning that it launched a formal tender offer to buy rival Kate Spade for $18.50 per share in cash. Coach said the $2.4B offer will expire on June 23, unless extended. The offer will be for all outstanding shares of Kate Spade, Coach stated. The tender offer is subject to customary conditions to closing, and includes a condition that the number of shares validly tendered prior to the expiration, in addition with shares owned by Coach, "represents at least one share more than 50% of all shares then outstanding."

DEAL BACKGROUND: Earlier this month, Coach announced plans to buy Kate Spade for $2.4B in a deal that is expected to be accretive in fiscal 2018. In a statement announcing the deal, Coach Chief Executive Officer Victor Luis said that 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." Coach said at the time that it planned to reduce sales in Kate Spade's wholesale disposition and online flash sales channels.

WHAT'S NOTABLE: During the tender offer process, another company or investor could potentially make a hostile offer for the acquisition target. According to reports, Michael Kors (KORS) had been another potential suitor for Kate Spade, but was "not pursuing the deal as aggressively as Coach."

ANALYST COMMENTARY: UBS analyst Michael Binetti yesterday raised his price target on Coach to $55 from $49 and reiterated a Buy rating on the stock. In a note to clients, Binetti said Coach is the "best acquirer" of Kate Spade after executing a similar turnaround for its core brand. The increased price target reflects the cost synergies, planned reduction of brand dilutive sales with the Kate Spade acquisition, and the forward growth rates and opportunities for the combined companies, Binetti said. Earlier this month, Binetti said he believes Coach has the right strategy to turn around the Kate Spade business, including its pricing issues and brand scores. At the time, Credit Suisse analyst Christian Buss was also optimistic on the deal, and said Coach will be able to apply its "effective distribution model" and "sales discipline" to Kate Spade. Deutsche Bank analyst Paul Trussell recently upgraded Coach to Buy, saying the acquisition of Kate Spade provides a buying opportunity. The analyst is similarly confident in management's ability to execute, citing the success of Coach's turnaround thus far. Trussell, who expects the Kate Spade deal to be "highly accretive," raised his price target for Coach shares to $54 from $40.

1 2
View single page >> |

Disclosure: None. 

 

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.