Handbag maker Coach Inc. (NYSE:COH) has agreed to buy smaller rival Kate Spade & CO (NYSE:KATE) for US$2.4bn following months of talks.
Shares in Coach rose 3.49% to US$42.66 and shares in Kate Spade jumped 8.37% to US$16.97 in US pre-market trading.
The acquisition will allow Coach to tap into Kate Spade’s millennial customers as the luxury fashion industry tackles deep discounting and sluggish demand.
Coach will pay US$18.50 per share for Kate Spade, known for its quirky satchels and totes, representing a premium of 9% to the closing price on Friday.
Victor Luis, chief executive of Coach, said: “Coach’s extensive experience in opening and operating specialty retail stores globally, and brand building in international markets, can unlock Kate Spade’s largely untapped global growth potential.”
The deal is expected to close in the third quarter of 2017 and contribute to adjusted earnings in fiscal year 2018.
Ahead of the announcement, merger and acquisition rumours had been circulating with Coach said to be eyeing luxury shoe manufacturer Jimmy Choo.
In December last year Burberry Group plc (LON:BRBY) reportedly rejected multiple takeover offers from Coach.
Last week Coach reported third quarter earnings that exceeded market forecasts as its strategy for cutting back on discounting paid off. The retailer reported earnings of 46 cents a share, excluding items, compared to expectations of 44 cents a share. However, sales fell short of forecasts of US$1.02bn, at US$995mln.