New York-based hedge fund and activist investor Caerus Investors on Nov. 14 pushed for Kate Spade & Co. to sell itself.
The hedge fund sent a letter to the company’s chairman urging it to consider a sale of the company under the rubric of creating shareholder value. The fund is managed by Ward Davis and Brian Agnew. They expressed concern in their letter that the women’s handbag and accessories firm has been underperforming its peers, which in turn has led to the decline in the stock price.
A spokeswoman for Kate Spade said, “We appreciate shareholder feedback and we will continue to have an open and constructive dialogue with all of our shareholders.”
The Caerus letter also said “We think Kate Spade would make a great acquisition candidate for a strategic company in the lifestyle accessories category.” That immediately led to speculation that Coach might be an interested party since chief executive officer Victor Luis has said that the firm is on the prowl for an acquisition for which it can leverage its back office and sourcing capabilities.
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Shares of Coach rose 2.7 percent to close Monday’s session at $37.99 in Big Board trading, while shares of Kate jumped 7.9 percent to close at $17.93. Kate’s shares have dropped about 21 percent in the past 12 months.
A spokeswoman for Coach said, “Coach has a long-standing policy of not commenting on rumors and speculation.”
In the letter that was sent to Kate Spade chairman Nancy Karch, dated Nov. 14, the hedge fund said, “We are deeply concerned about the precipitous decline in the share price of Kate Spade over the last two and a half years brought about by managements’ inability to meet their own stated goals. The stock has now fully retraced the entire gains from when the former Fifth and Pacific first announced its intention to isolate Kate Spade as a stand-alone entity in early 2013.” It equated the stock’s retracement to a conclusion that “over $3 billion in equity value [was] destroyed” in the last two-and-a-half years.
The letter went on to state that given the 63 percent decline in the shares since the intraday high on Aug. 11, 2014, “We believe the best path for enhancing shareholder value is to pursue a sale of the company. We strongly believe that a strategic, industry player would be willing to pay a substantial premium to add this growth business to their portfolio.”
The hedge fund said it first invested in Kate Spade in 2009 when it was a brand under the umbrella of Liz Claiborne, noting that it argued back then for a break-up of the company, which later occurred in 2013. What it did not provide was information on how large a stake it has now in Kate Spade. It could not be determined how large a stake Caerus holds in Kate Spade.