Coach, Inc. announced it has signed a definitive agreement to acquire Kate Spade & Company for $2.4 billion.
Under the terms of the transaction Kate Spade shareholders will receive $18.50 per share in cash for a total transaction value of $2.4 billion, and Kate Spade will function as an independent brand.
The merger will combine the two brands, creating a company with $5.9 billion in annual sales and 1,300 retail stores and outlets around the world, Wall Street Journal reports.
Coach’s CEO Victor Luis said the acquisition is a necessary step in realizing the American luxury brand’s mission to create the industry’s first New York-based “modern luxury” lifestyle conglomerate. The brand acquired Stuart Weitzman for $574 million in 2015 to diversify its brand portfolio, and recently collaborated with Rodarte on a ready-to-wear and accessories collection.
Luis said the acquisition will also position Kate Spade for global growth with the aid of Coach’s experience in “opening and operating specialty retail stores globally and brand building in international markets.” Europe and Asia are its top international targets for expansion.
“Kate Spade has a truly unique and differentiated brand positioning with a broad lifestyle assortment and strong awareness among consumers, especially millennials,” he said in a statement. “The acquisition of Kate Spade is an important step in Coach’s evolution as a customer-focused, multi-brand organization.”
In a strategy similar to Coach’s over the last three years, Kate Spade will also decrease its wholesale distribution in off price stores and flash sale sites.
“Due to the complementary nature of our respective businesses, we believe that we can realize a run rate of approximately $50 million in synergies within three years of the deal closing, Coach’s CFO, Kevin Willis said. “To ensure the long-term viability and health of the Kate Spade brand, we plan to reduce sales in Kate Spade’s wholesale disposition and online flash sales channels.”
The deal is expected to close in Q3 of 2017 and add to adjusted earnings in fiscal 2018.