Handbag maker Coach buys millennials’ favourite Kate Spade

Handbag maker Coach Inc said it would buy Kate Spade & Co for $2.4 billion as it looks to tap the popularity of its smaller rival's quirky satchels and totes among millennials.

The $18.50-per-share offer in cash represents a premium of 9 per cent to Kate Spade’s Friday close. Its shares have risen 17 per cent since December 27th, a day before the first report that the company was looking to sell itself.

Kate Spade's handbags have struck a chord with millennials due to their subtle logos and quirky and colourful designs, including bags shaped like cats and cars. But the company, like other luxury handbag makers, including Coach, has struggled to live up to market expectations amid fierce competition and a drop in traffic to department stores. "[Kate Spade] allows us to go after a new customer segment," Coach Inc chief executive Victor Luis said on a conference call. Luis said Kate Spade's popularity among millennial consumers, not only in the United States but also in Europe and Asia, was what Coach found attractive.

In tune with Coach’s turnaround strategy, which includes limiting discounts and distribution to regain its brand cachet, the company will cut back Kate Spade’s sales to department stores and curb online flash sales while expanding the brand’s presence in Asia and Europe. Analysts called Kate Spade a good fit for Coach.