Coach Inc (NYSE:COH) has announced that it will be buying Kate Spade & Co (NYSE:KATE) for $2.4 billion.
Coach Inc says that it will be paying $18.50 per share for Kate Spade & Co. The purchase will be made with cash. It represents a 27.5% premium over KATE’s closing price on Dec. 27, 2016, which was the last day before speculation about the deal began.
Coach Inc will be using funds from BofA Merrill Lynch to help it acquire Kate Spade & Co. It will also use senior notes, bank term loans and approximately $1.2 billion of its own excess cash to acquire Kate.
The $2.4 billion deal between Coach Inc and Kate Spade & Co has already received unanimous approval from both companies’ Boards of Directors. The two companies are expecting $50 million in synergies within three years after the deal is complete. Both companies sell handbags and other fashion accessories.
Coach Inc is expecting the Kate Spade & Co acquisition to be accretive to its fiscal 2018 earnings on a non-GAAP basis. It expects this to reach double-digit accretion by fiscal 2019. COH is planning to reduce KATE’s flash and wholesale offerings to help with this.
Coach Inc also notes that it is planning to have Kate Spade & Co continue to operate as its own brand after the acquisition. This includes keeping its top talent, as well. The company believes that KATE has untapped potential and is looking to take the brand global.
Coach Inc is expecting the deal to acquire Kate Spade & Co to be completed in the third quarter of 2017. The deal will need approval from KATE shareholders and regulators before it can be completed.
COH stock was up 5% and KATE stock was up 8% as of Monday morning.
