Coach Among M&A Speculation Yet Again

Seems like every week Coach (NYSE:COH) is linked with the acquisition of a different luxury brand. This time around it is fashion house Jimmy Choo, best known for its shoes. The latter announced earlier this week that it is up for sale, sending its stock price to a record high, rising by more than 10%. The company, which is majority owned by JAB Luxury since 2011, stated that “it has decided to conduct a review of the various strategic options open to the Company to maximize value for its shareholders and it is seeking offers for the Company.” However, at the time of the statement the company had not received any offers. Jimmy Choo has a market cap exceeding £700 million, and besides Coach Inc., it could attract suitors from other luxury houses, as well as Chinese, Middle Eastern, and Russian buyers, according to BBC.

A Focus On Coffee, Rather Than Luxury

The billionaire Reimann family’s JAB Holding Co. is said to be unwinding its investments in luxury companies, putting shoemakers Jimmy Choo and Bally International up for sale. The company will instead focus on the food and beverage operations that it has spent a considerable amount on in recent years. JAB Holding has made investments to the tune of $30 billion over the past few years to acquire companies such as Caribou Coffee Co., Krispy Kreme Doughnuts, and Keurig Green Mountain. It seems like owning luxury goods companies doesn’t fit into a portfolio of fast growing consumer goods enterprises. The owner may also be in need of cash following its $7.2 billion purchase of Panera Bread.

British company Jimmy Choo’s revenue increased 15% last year to reach £364 million, helped on by a falling pound, which increased the value of the international sales when converted into sterling. However, in currency neutral terms, the sales only increased by 1.6%, with growth in China offset by weakness in the US and Europe. The slowing growth is evident when the performance is compared to its prior years’ growth rates of 7% in 2015, and 12% in 2014. However, the shoe-maker is under-represented in many markets. Hence, being a part of a larger conglomerate would help to ease the cost of retail expansion. There has also been a revival of demand for high-end luxury goods, spurred on by a resurgent demand from China. This proposition may attract companies such as Coach Inc., Michael Kors, LVMH, and Kering, besides Li & Fung Ltd. of Hong Kong, and Mayhoola Investments, the Qatari royal family’s investment fund. However, Kering has been offloading shoe brands of late, and LVMH has shown a greater interest in niche brands, and not mainstream, lately. Coach may seem like a likely suitor, as it has made its intentions of seeking another luxury player clear. It had also acquired another footwear brand, Stuart Weitzman, in 2015 for $574 million.

Another Week, Another Rumor

Coach Inc.’s stock price has increased over 12% since the beginning of the year as the investors try to price in likely acquisitions which will add to the company’s portfolio, and help to increase their sales. The company has been heavily linked with the acquisition of Kate Spade, besides rumors of a merger with Bloomberg, as well as speculation of being a takeover target itself.

However, in the latest twist in the Kate Spade tale, news recently surfaced that the company will spend a few more weeks negotiating a potential sale of the company, after it received an offer from Coach Inc. Such a move would allow buyers to better assess Kate Spade’s first quarter results, released on April 18, according to people familiar with the matter. However, disappointing sales in the quarter may result in a lower price for the company, with Cowen analyst Oliver Chen dropping his price target for Kate Spade to $21, from $27 earlier, and stating that a potential deal would in most likelihood occur at the lower end of the expected $22 to $25 range. Coach Inc. has long been considered a suitable buyer for Kate Spade, given its focus on handbags and accessories. Furthermore, given the former’s substantial presence in department stores and also internationally, Kate Spade would have the ability to grow in these segments.

See our complete analysis for Coach here

Have more questions on Coach? See the links below:

• Could Coach Inc. Be A Takeover Target?
• Why Does A Deal Between Kate Spade And Coach Inc. Make Sense?
• Coach And Michael Kors Still In The Hunt For Kate Spade
• Coach Inc.’s Revenue Rises Despite Department Store Pullback

See our complete analysis for Coach