A Huge Business Deal
Coach, Inc. has reached an agreement to purchase rival handbag maker Kate Spade & Co. in a deal valued at $2.4 billion, which means that Coach will pay $18.50 in cash for each Kate Spade share. Coach plans on keeping key members of the Kate Spade staff and to maintain “brand independence”. In 2015, Kate Spade shares were trading around $40, then plummeted back down to $16 per-share after the deal rumors started up.
Part of the reason for this deal is for Coach to improve its sales, as well as to “broaden its customer base to a younger, trendier millennial shopper.” Before the acquisition, Coach, Inc. might have realized that they can’t push their own brand much further. Therefore, they purchased Stuart Weitzman shoes in 2015, which was a successful acquisition.
Adding companies like Kate Spade and Stuart Weitzman can allow Coach to be like a mini-conglomerate, similar to those in some European fashion houses. Their objective is to create a “leading luxury lifestyle company” that has “significant expertise in handbag design, merchandising, supply chain, and retail operations.” Both Coach and Kate Spade have goals to broaden their international presence, as well. In order to make money for their shareholders, Coach, Inc. needs to work on cutting costs.
Some efficiencies they can create are to do the same cost cutting ideas that they did with their own company. Hopefully, it will work the same with the Kate Spade company.