Coach, Kate Spade

Continuing its efforts to build a multibrand luxury conglomerate, handbag maker Coach is acquiring Kate Spade, a smaller rival that appeals to millennials, for $2.4 billion.

Coach’s shares rose nearly 5% on news of the deal Monday, suggesting investors welcome the idea of adding Kate Spade’s handbags — which feature quirky designs, including bags shaped like cats and cars, aimed at the millennial market — to its product line.

Coach will pay $18.50 a share in cash for Kate Spade, a premium of 9% to the closing price on Friday, The two companies also offer a combination of men’s wear, ready-to-wear fashion, accessories, fragrances and homeware.

“Kate Spade has a truly unique and differentiated brand positioning with a broad lifestyle assortment and strong awareness among consumers, especially millennials,” Coach CEO Victor Luis said in a news 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, which was founded in 1993 by a former fashion journalist, sells bags priced from $100 to $500, while those of Coach go for $285 to $3,000. According to Coach, about 60% of Kate Spade’s customers are millennials.

“We are very excited that Kate Spade has strength with the millennial consumer,” Luis told Reuters.

As The New York Times reports, Coach had fallen on harder times in recent years, in part because the discounting of its own products diluted the brand’s luxury appeal. Luis has responded, the Times said, by remaking Coach into a “luxury group in the vein of Europe’s LVMH Moët Hennessy Louis Vuitton and Kering, with two major differences: an identifiably American aesthetic and price.”

The company has cut back on discounting and pulled out of more than 250 department amid declining traffic in malls. For the third quarter, it reported better-than-expected earnings of 46 cents a share on revenue of $995 million.

“Making the shift from turnaround mode to growth mode, Coach hopes to boost sales in the coming quarters and better-position its brand in the mind’s of shoppers,” CNBC said.

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