LONDON (ShareCast) - (ShareCast News) - Shares in Kate Spade surged in pre-market trade as Coach signed an agreement to acquire the company in a deal worth $2.4bn.
Under the terms of the transaction, which has been unanimously approved by the boards of directors of both companies, Kate Spade shareholders will receive $18.50 per share in cash. This represents a 27.5% premium to the unaffected closing price on 27 December 2016.

Coach chief executive officer Victor Luis said: "Kate Spade has a truly unique and differentiated brand positioning with a broad lifestyle assortment and strong awareness among consumers, especially millennials. 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.

"In addition, we believe 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. We are confident that this combination will strengthen our overall platform and provide an additional vehicle for driving long-term, sustainable growth."

Coach's chief financial officer Kevin Wills said that due to the complementary nature of the respective businesses, they reckon they can realise a run rate of around $50m in synergies within three years of the deal closing. These cost synergies will be achieved through operational efficiencies, improved scale and inventory management, and the optimisation of Kate Spade's supply chain network.

The deal is not subject to any financing conditions and Coach has secured committed bridge financing from Bank of America Merrill Lynch. The purchase price is expected to be funded by a combination of senior notes, bank term loans and around $1.2bn of excess Coach cash, a portion of which will be used to repay an expected $800m six-month term loan.

The transaction is expected to close in the third quarter of calendar 2017.

At 1220 BST, Kate Spade shares were up 8% to $18.35.

Email this article to a friend

or share it with one of these popular networks:

• DIGG
• FACEBOOK
• STUMBLEUPON
• MIXX
• YAHOO BUZZ
• DELICIOUS
• REDDIT
• NEWSVINE