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Could Coach and Burberry combine?

October 21, 2016 04:51 PM
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(Bloomberg)—Burberry Group Plc shares rose the most in almost eight months Friday after the Betaville financial blog said Coach Inc. is considering merging with the British trench coat maker.

Coach, the U.S. maker of purses and accessories has been working with financial advisers at Evercore for several weeks on a possible deal, the website said, citing two people familiar with the situation it didn’t name. Burberry shares traded 3% higher at 1,494 pence ($18.24) at 1:59 p.m. in London after rising as much as 8.1%, the biggest intraday gain since Feb. 26. Coach traded at the equivalent of $36.21 in Frankfurt, up about 1% from Thursday’s close in New York.

Representatives for Burberry and Coach declined to comment. Earlier this year, the Financial Times reported that London-based Burberry asked its advisers at Robey Warshaw to help prepare a defense for a possible bid.

Burberry is No. 356 in the Internet Retailer 2016 Top 500 Guide with an estimated $59.2 million in online sales in 2015, up 16.1% from $51.0 million in 2014, and a five-year compound annual growth rate of 22.72%, according to Top500Guide.com data. Coach (No. 163) had web sales of $200 million, down 60% from $500 million in 2014, and a CAGR of negative 9.37%, Top500Guide.com says.

“A merger of Coach and Burberry would primarily be a merger of problems,” Exane BNP Paribas analyst Luca Solca said in a note. “M&A history in luxury has shown that mergers don’t obviously help in regaining brand traction and desirability.”

Burberry and Coach are both grappling with a slowdown in luxury spending, and have reshuffled management to try and turn their fortunes around. Burberry has named Marco Gobbetti to replace Christopher Bailey as CEO next year, while Coach named Valentino veteran Wendy Kahn to run designer shoe brand Stuart Weitzman, which it bought last year.

 

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