Handbag maker Coach said it would buy Kate Spade & Co for $2.4 billion as it looks to tap the popularity of its smaller rival's quirky satchels and totes among millennials. Kate Spade said in February it was exploring strategic options, after hedge fund Caerus Investors urged the company to sell itself citing the management's inability to achieve profit margins comparable to industry peers.
Kate Spade's handbags have been a hit with millennials due to their subtle logos and their quirky and colorful designs, including bags shaped like cats and cars. But the company, like other luxury handbag makers, has struggled to live up to market expectations amid fierce competition and a drop in traffic to department stores.
Coach has been looking for an acquisition for months, according to reports, as it looks to turn around its business in the anemic handbag market. The $2.4 billion purchase price is expected to be funded half in cash and half in debt, Coach said. The deal is not subject to any financing condition.
The deal is expected to close in the third quarter of 2017 and add to adjusted earnings in fiscal 2018, Coach said.