Handbag and accessories maker Kate Spade & Co said on Thursday it would explore strategic alternatives, bowing to pressure from U.S. hedge fund Caerus Investors. Kate Spade's shares closed up 14.7 percent at $22.56, valuing the company at $2.89 billion. The company said it would review strategic alternatives with Perella Weinberg Partners as its financial adviser.
The moves come amid a slump in sales for handbag makers, hurt by declines in mall traffic and a drop in foreign tourist spending due to a strong dollar. Kate Spade said on Thursday sales at stores open for at least 14 months fell 1.5 percent in the fourth quarter, as fewer customers visited its kate spade new york stores.
Caerus, a small New York-based hedge fund, not known for the kind of public activism it is targeting at Kate Spade, sent a letter to the board in November, saying it was "increasingly frustrated" by the inability of Kate Spade's management to achieve profit margins comparable with industry peers.
The company's 2016 margins before interest and income taxes was 13.2 percent, compared with 17.5 percent at Coach and 21.3 percent at Michael Kors. Since Caerus's letter, several media outlets have reported that Coach and Michael Kors were interested in bidding for the company. A deal could be imminent given Kate Spade's early announcement of its fourth-quarter results, plus the absence of a full-year forecast, Cowen and Company analyst Oliver Chen wrote in a note.
The company's slimmer distribution profile, non-handbag products across the United States, small leather goods and novelty items will be attractive factors to a strategic or financial buyer, Chen said. Chen said other luxury goods companies such as LVMH, Kering, and Richemont are also likely to consider buying Kate Spade.