Coach Acquires Kate Spade For $18.50/share Or $2.4B

Coach (COH) announced it has signed a definitive agreement to acquire Kate Spade & Company (KATE). Under the terms of the transaction Kate Spade shareholders will receive $18.50 per share in cash for a total transaction value of $2.4B.

The transaction represents a 27.5% percent premium to the unaffected closing price of Kate Spade's shares as of December 27, the last trading day prior to media speculation of a transaction, Coach pointed out. Kate Spade closed Friday up 22c to $16.97. The transaction has been unanimously approved by the board of Kate Spade and Coach. The transaction is not subject to a financing condition. Coach has secured committed bridge financing from BofA Merrill Lynch.

The $2.4B purchase price is expected to be funded by a combination of senior notes, bank term loans and approximately $1.2B of excess Coach cash, a portion of which will be used to repay an expected $800M six-month term loan. The transaction is expected to close in Q3 of 2017. Kevin Wills, Coach's CFO, said in the press release, "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. These cost synergies will be realized through operational efficiencies, improved scale and inventory management, and the optimization of Kate Spade's supply chain network.

At the same time, to ensure the long-term viability and health of the Kate Spade brand, and similar to the steps Coach has itself taken over the last three years, we plan to reduce sales in Kate Spade's wholesale disposition and online flash sales channels. Therefore, the reduction in profitability from the pullback in these channels will be offset by the realization of these substantial synergies. As a result, we expect that the acquisition will be accretive in fiscal 2018 on a non-GAAP basis, and will reach double-digit accretion by fiscal 2019, also on a non-GAAP basis."


Disclosure: None.

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