NEW YORK — Shares of Kate Spade & Co., Coach Inc. and Michael Kors Holdings Ltd. all saw gains Monday following speculation that a decision might be made soon in the sale of Kate Spade.
Financial sources said final bids were due Monday, and the expectation is that Kate Spade will receive at least one bid, from Coach. While Kors is still rumored to be interested, at least one investment banker indicated that Kors might no longer be in the process, although that could change at the last minute.
Spokespeople for Kate Spade, Coach and Michael Kors each declined comment.
Shares of Kate Spade rose 1.5 percent to $23.53, while Coach shares rose 2.4 percent to $40.03. Kors saw its shares rise 0.6 percent to $37.80.
Kate Spade confirmed last month when the company posted fourth-quarter results that it was reviewing its strategic alternatives. The company had been pushed in November to undertake that action by activist investor Caerus Investors, a New York hedge fund.
Bankers and Wall Street analysts have pegged a takeout price at $23 to $25 a share, which implies 13 to 14 times earnings before interest, taxes, depreciation and amortization for the past 12 months.
According to Wells Fargo analyst Ike Boruchow, Kate Spade — once a Wall Street darling — can no longer sell at $40 a share. “They missed their window to really monetize it,” Boruchow said, adding, “Management has done a not-so-great job over the last couple of years of unlocking value.”
The analyst believes Kate Spade has “plenty of runway on the top line,” and there’s potential for higher margins, as well as the generation of “ample synergies for a potential multinational buyer.”
Agathe Blanchon-Ehrsam, chief marketing officer for strategic consultancy Vivaldi, said Kate Spade could be a good operational play for a company such as Coach due to sourcing synergies for raw materials. She said a deal could help Coach because Kate Spade is a lifestyle brand that has done a better job resonating with consumers than Coach “because it is more applicable to life events, such as engagements, weddings and special occasion gifts.” For Kate Spade, the benefit could come in the form of global distribution or support in growing its men’s business.
But even though there’s believed to be some runway growth ahead for Kate Spade, mergers and acquisition experts are divided on whether a transaction will happen.
Mortimer Singer, chief executive officer at Marvin Traub Associates, believes that a deal will happen. According to Singer, there’s always a chance that once a company evaluates the offers that they can turn around and decide to stay as a stand-alone firm. But in the case of Kate Spade, he’s not so sure that would happen. “It does and it has happened, but rarely does it happen with a valuable business — such as Kate — that has great potential and global momentum, notwithstanding some turbulence recently. The company would be valuable to both strategic buyers and private equity firms. It would be a very down-the-fairway type of acquisition for large private equity firms to take private.”
William Susman, founder of Threadstone Partners, isn’t so sure about either Coach or Kors. “There’s been this perpetual discussion, and I continue to believe that there will be no deal. I don’t think that either one of those companies are so desperate that they’re going to make that big of a bet. I would be very surprised.”
Susman said that with the current stock price giving Kate Spade a $3 billion market cap, “Coach at $11 billion can afford it, but the question is ‘Why do they need it?’ And Kors is at $6 billion, but ‘What does [Kate Spade] do for them?’”
He explained that even if one can grow the Kate Spade business and extract out some cost saving from synergies, there’s a real question over “Where’s the value if Kate is trading around 12 times EBITDA? No one is buying this [company] cheap.”
Susman concluded that in the current market, companies might be better off looking at a former client of his, Rebecca Minkoff, which sold a stake to private equity firm TSG Consumer Partners. TSG is said to be looking for a buyer for the minority stake it purchased in March 2012.
He queried why anyone would spend “$3 billion for Kate when they can buy, for $300 million, a [stake in a] firm such as Rebecca Minkoff and get a younger customer.”