Shares of Kate Spade & Co. dropped 13.9 percent in early-morning trading following reports that the firm needs more time to negotiate a sale of the company.
Final bids were due last week, and at least one is believed to have been submitted by Coach Inc. Kate Spade is said to be continuing its ongoing dialogue with Michael Kors Holdings Ltd., although banking sources said Monday night they didn’t think Kors made a bid. Two weeks ago investment banking sources said they didn’t think Kors would make a bid.
Coach and Kors were said to be interested in Kate Spade since last year when activist investor Caerus Investors pushed the accessories brand favored by Millennial women to put itself up for sale. Both put in initial bids at the end of February, sources said. And while the two continue to be in discussions with Kate Spade, Coach is said to be the more aggressive in its pursuit of Kate Spade.
Further, financial sources said that Kate Spade had hoped for a takeout bid of close to $3 billion. But bankers and Wall Street analysts last month said that even if a takeout price could be had for between $23 and $25 a share, that would be considered “rich” for the brand. One banker even said that range might be too high, and speculated that no deal would get done following the latest round of bidding.
William Susman, founder of Threadstone Partners, was one of the bankers who predicted a deal wouldn’t be immediately forthcoming. Last week he told WWD that even if one could grow the Kate Spade business and extract out some cost savings from synergies, the real question was “Where’s the value if Kate [Spade] is trading around 12 times EBITDA. No one is buying this [company] cheap.”
Late Monday shares of Kate Spade slipped following reports – first from Reuters – that the company needs more time to negotiate a deal.
Presumably if the stock continues to decline, a transaction could get done at a lower – and more realistic – valuation.
Spokespeople for both Coach and Kate Spade declined comment.
Shares of Kate Spade were trading on the Big Board in the range of $19.64 at 9:53 a.m. Kate Spade shares ended last week’s trading session on Friday at $23.23.