Coach Announces It Is Buying Kate Spade In $2.4 Billion Deal

Enlarge this image toggle caption Spencer Platt/Getty Images Spencer Platt/Getty Images

Luxury brand Coach says it has reached a deal to acquire smaller rival Kate Spade in a cash deal worth $2.4 billion.

The announcement confirms months of rumors that the two New York-based brands were in talks to join forces and comes as Coach is trying to attract millennial customers. Both boards unanimously approved the deal, which is expected to close in the third quarter of 2017.

"Kate Spade has a truly unique and differentiated brand positioning with a broad lifestyle assortment and strong awareness among consumers, especially millennials," Victor Luis, the CEO of Coach, said in a press release. "Through this acquisition, we will create the first New York-based house of modern luxury lifestyle brands, defined by authentic, distinctive products and fashion innovation."

Kate Spade stock sold at $18.50 per share. As the statement notes, that's a 27.5 percent premium to the closing price on Dec. 27, "the last trading day prior to media speculation of a transaction."

However, it's worth noting that the "stock rose much higher in the interim," as Bloomberg reports. "As deal speculation raged in February, the shares climbed above $24, a sign investors expected to get a much richer price than they ultimately received."

Both brands saw gains after the deal was announced. Kate Spade's stock rose more than 8 percent as of midafternoon trading Monday, while Coach's rose just less than 5 percent.

Bloomberg suggests that the deal speaks to the "handbag industry's broader woes": "Companies have struggled to get customers to pay full price, and a reliance on the beleaguered department-store channel has hurt sales."

Coach CFO Kevin Wills says that because the businesses are complementary, he believes they'll be able to save $50 million in the three years after the deal closed, through "operational efficiencies, improved scale and inventor management, and the optimization of Kate Spade's supply chain network."

At the same time, he says they plan to slash Kate Spade's "wholesale disposition and online flash sale channels." It's an effort to "regain its brand cachet," according to Reuters.