Low value lifts Coach takeover odds

PUBLISHED : Thursday, 07 March, 2013, 12:00am
UPDATED : Thursday, 07 March, 2013, 6:12am

Coach's handbags and shoes are being offered to buyers at one of the biggest bargains among luxury brands.

Shares of Coach have lost 17 per cent since faster-growing rival Michael Kors went public in 2011 and began an almost threefold rally. Even though Coach has the widest profit margins among peers, the US$14 billion company is trading for only 13.6 times earnings, lower than 96 per cent of similar-sized rivals.

Coach's valuation and cash generation could attract private-equity firms, Atlantic Equities said. Louis Vuitton and PPR may be among suitors drawn to its margins and the chance to expand Coach beyond the United States and Japan.

A buyer would have to bid at least 32 per cent more than Monday's close, Edward Jones said.

"If you're out there looking for a deal, it meets a lot of metrics," said Brian Yarbrough, an analyst at Edward Jones. "There is still growth available. They have a great brand. They generate a tonne of cash. They have a great balance sheet. What's not to like about it?"

Andrea Resnick, a spokeswoman for Coach, declined to comment on the company's takeover prospects.

Coach has seen its shares fall 38 per cent since last year's peak. The retreat comes as Coach's growth stagnates amid competition from other handbag makers such as Michael Kors, Tory Burch and Fifth & Pacific's Kate Spade.

Coach said in January that it failed for the first time to gain or hold North American handbag market share in its latest quarter. Michael Kors, a US$12 billion firm based in Hong Kong, posted fiscal 2012 revenue growth that was four times faster than the 15 per cent pace at Coach.

The slump in its stock left Coach trading on Monday at 13.6 times earnings, 62 per cent less than Michael Kors. The median price-earnings ratio was about 19.2.