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Kate Spade to evaluate alternatives
Posted on Friday, 17 February 2017 13:14
Kate Spade, the US design house known for its handbag and accessories, announced in its results for fiscal 2016 it has hired advisors to weigh up options despite gaining market share amid a challenging retail environment.
Perella Weinberg Partners and Paul Weiss Rifkind Wharton & Garrison are helping on the strategic review, which is normally a code-word for a sale, though there is no guarantee the process will result in a transaction.
Shares in Kate Spade finished 14.7 per cent higher yesterday following the announcement of results for FY 2016 to value the business at USD 2.89 billion.
Despite closing at USD 22.56, the company’s market value has been on the decline since Summer 2014, before stocks fell by a quarter in one day alone (11th August 2014: USD 38.87; 12th August 2014: USD 29.00).
The announcement comes less than two months after sources told the Wall Street Journal (WSJ) Kate Spade had started sounding out interest from potential suitors following pressure from a hedge fund in November.
While no specific names were given, the newspaper suggested the designer items manufacturer could attract fellow luxury accessory companies, foreign buyers and buyout houses.
The hedge fund noted in the WSJ article was Caerus Investors, which issued an open letter urging the board of Kate Spade to realise shareholder value through a sale on the back of “the precipitous decline” in its share price.
It first invested in the designer in 2009 when it was still housed within Liz Claiborne and subsequently backed a proposal to spin it off in 2013.
However, Caerus claims earnings before interest, tax, depreciation and amortisation margins are significantly below peers, at a point where predecessor Fifth and Pacific sold off two of its brands.
It added: “We think Kate Spade would make a great acquisition candidate for a strategic company in the lifestyle accessories category.
“The company’s margins are well below peers with material opportunity for expansion as licensing revenues grow and the business scales over time.”
© Zephus Ltd