Kate Spade Said to Kick Off Formal Sale Process Next Month

  • Handbag maker said to draw interest from about six companies
  • Kate Spade is under pressure from hedge fund to pursue sale

Kate Spade Shares Up on Report Company Is Pursuing Sale

Kate Spade & Co., which is exploring a sale of the handbag maker, plans to kick off a formal auction process next month, with interest from six possible bidders, according to a person familiar with the situation.

The New York-based retailer is working with financial advisers on sale preparations, said the person, who asked not to be identified because the details aren’t public. The potential bidders for Kate Spade, which has a market value of about $2.3 billion, are mostly other retailers, the person said.

A sale would cap a comeback for a brand that struggled to recover from the last recession and had to rely heavily on discounts to attract customers. Kate Spade has restored sales growth and burnished its image, allowing the company to charge full price for more of its handbags.

Hedge fund Caerus Investors pushed the company last month to find an acquirer that could help it improve its profit margins. The fund, which didn’t reveal how much of Kate Spade it owns, sent a letter saying shareholders were “incredibly frustrated” with performance and would be better off if the company was sold to an acquirer that could better manage the business.

Representatives for Kate Spade and Caerus declined to comment.

‘Constructive’ Talks

The New York-based hedge fund’s founder and chief investment officer, Ward Davis, said Wednesday that he wasn’t aware of any moves Kate Spade is taking toward a possible sale -- though he would be supportive of such a process. Caerus’s engagement with the board “has been constructive,” he said.

The company -- formerly named Fifth & Pacific -- had been seen as an attractive takeover target ever since it sold the Juicy Couture and Lucky brands in 2013 and 2014, leaving Kate Spade as its sole major nameplate. It has embarked on a plan to become a lifestyle brand, selling everything from apparel to home goods -- similar to Ralph Lauren Corp. -- with a goal of quadrupling revenue to $4 billion annually.

The stock rebounded from earlier losses Thursday after Bloomberg reported on the sale process. It gained 3.5 percent to $18.49 in New York trading, following a decline of 3.9 percent previously in the session.

Coach Inc. and Michael Kors Holdings Ltd., two of Kate Spade’s biggest competitors, also are working to rely less on markdowns. Industry consolidation is seen as a way to restore pricing power.

Kate Spade could fetch a price of $21 to $23 a share in an acquisition, according to Betty Chen, an analyst at Mizuho Securities. In a note Wednesday, she pointed to Coach as a potential suitor.

More athletic-focused brands may be less of a good fit, said Kay Koplovitz, a former Kate Spade board member who spoke on Bloomberg Television.

The bidder would need to cultivate Kate Spade’s role as a “whimsical” brand aimed at millennial career women, Koplovitz said.

If it’s purchased by an apparel conglomerate with lots of labels, there’s a danger of “homogenizing” the business, she said.

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