3 Min Read
(Reuters) - U.S. handbag and accessories maker Kate Spade & Co KATE.N will spend a few more weeks negotiating a potential sale of the company after receiving an offer last week from Coach Inc (COH.N), three people said on Monday on condition of anonymity.
Michael Kors Holdings Ltd (KORS.N) also remains interested in Kate Spade, though it has not been pursuing an acquisition of the company as actively as rival fashion accessories maker Coach, the people said.
Giving the sale process more time allows potential buyers to better assess Kate Spade's first-quarter sales and negotiate a potential deal, the people added.
Kate Spade shares ended trading on Monday down 1.85 percent at $22.80, giving it a market capitalization of around $2.9 billion. If Kate Spade manages to negotiate a sale of the company, a deal would very likely value it below that level, according to the people. It is also possible that negotiations end without a deal, the people cautioned.
Michael Kors and Coach declined to comment, as did Kate Spade.
Affordable luxury brands such as Michael Kors and Coach have suffered after they expanded their retail presence too quickly and sold too heavily in outlet stores, diluting the exclusivity that once caused shoppers to line up for the next hot handbag.
These brands have been hurt as fewer shoppers in malls have led to fewer handbag sales, while a stronger dollar has made it difficult for them to maintain their popularity with tourists visiting the United States.
Kate Spade would offer Coach or Michael Kors greater pricing power with department stores, as well a younger clientele.
Coach has been seeking to diversify its business beyond handbags. It paid $574 million for designer footwear company Stuart Weitzman in 2015.
Michael Kors, which sells apparel, handbags, watches and other accessories, said in its most recent earnings call it was "actively looking" at potential acquisitions and that it probably would not do small deals. The company has been focused on a turnaround by improving its outlets and stores.
Kate Spade has been under pressure from a small New York-based hedge fund, Caerus Investors, whose stake in the company could not be determined. Caerus sent a letter to Kate Spade's board in November, stating it was "increasingly frustrated" by the inability of the retailer's management to achieve profit margins comparable with industry peers.
Separately, investor Barry Rosenstein's activist hedge fund Jana Partners LLC has also revealed a small stake in the company.
Reporting by Greg Roumeliotis and Lauren Hirsch in New York; Editing by Dan Grebler