NEW YORK — Shares of Kate Spade & Co. rose 4.4 percent Tuesday following a report that first-round bids are forthcoming.
A spokeswoman for Kate Spade & Co. declined comment.
The report from DealReporter said the company is awaiting first-round bids, which could be submitted by the end of this month. That was enough to renew speculation that the company was on course to sell itself.
Shares of Kate Spade & Co. closed Tuesday at $19.61 in Big Board trading.
The fact that Kate Spade & Co. is considering a sale of itself isn’t a surprise, given that New York-based hedge fund and activist investor Caerus Investors in November sent the firm’s chairman a letter pushing for the move. The Caerus letter said it believed Kate Spade & Co. would be a “great acquisition candidate for a strategic company.”
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Two candidates have emerged as possible strategic acquirers: Coach Inc. and Michael Kors Holdings Ltd. Coach and Kors are each led by chief executive officers who have said on recent earnings calls that that they are actively considering acquisition targets. More recently, there’s been speculation that private equity firms have considered the idea of a Kate Spade & Co. deal, although no potential acquirers have been identified.
Just exactly who is the ideal suitor for Kate Spade & Co. is unclear. There’s concern that Coach and Kors might be better off focusing on their own core businesses before eyeing an acquisition for growth.
According to Adrienne Yih, analyst at Wolfe Research, “Kate is the brand that has the most affinity with the Millennial population — women in their 20s and 30s. Kate is very sweet, feminine, preppy and tongue-in-cheek in a more youthful manner. In comparison, Kors and Coach appeal to a broader demographic, the consumer who is in their 30s and 40s. The two brands are more flexible in their appeal and the consumers have different psychographic and demographic profiles from those who favor Kate.”
Yih, who last month analyzed the “brand footprint” of Kate Spade & Co., Kors and Coach, concluded that Kate Spade & Co.’s North American brand footprint at $1.67 billion is too small, noting that Kate Spade & Co. has room to grow, but needs to balance growth from wholesale and licensing to maintain brand control.
The analyst said Kors, with its $5.78 billion Americas brand footprint — 78 percent higher than total sales of $3.25 billion — is too big and still needs to contract its wholesale distribution. Coach, at $2.69 billion for its North American brand footprint, was deemed just right. Coach has total sales of $2.39 billion, with 95 percent of its North American sales from company-owned retail stores.
Looking at brand footprint to total sales, Yih concluded that “neither makes sense” when asked whether Kors or Coach is the more logical buyer for Kate Spade & Co., which is an aspirational brand, and Kors might still have more issues to deal with in its turnaround. As for Coach, Yih said, “Coach has made it clear that its goal is to be a portfolio of global luxury brands. Not only is Kate’s handbag and accessories business directly competitive with that of Coach, but the lower average price point may be dilutive to Coach’s brand portfolio.”