Handbag maker Kate Spade & Co. (NYSE:KATE) is planning to explore a formal sale of the company. The retailer is reportedly working with financial advisers on sale preparations, according to a person familiar with the situation. The formal auction process is scheduled to begin next month.
Kate Spade came under pressure last month from an activist shareholder to explore a sale. Hedge fund Caerus Investors pushed the company to find an acquirer that could help it improve its profit margins. Caerus founder and chief investment officer, Ward Davis, said he would be supportive of moves toward a possible sale.
In a letter to shareholders, Caerus said the market had lost faith in the company’s management. The letter also noted the sharp decline in the company’s shares since the summer of 2014. The shares traded as high as about $40 that year. The stock reached $18.49 in Thursday’s New York trading session. The hedge fund has not revealed how much of Kate Spade it owns.
About six companies are said to be interested in purchasing the business. The potential bidders are mostly other retailers, said the person, who asked not to be identified. Coach Inc. has long been considered a good home for Kate Spade, given Coach’s focus on handbags and accessories. Two other contenders, Hanesbrands Inc. and Michael Kors, have recently said they are seeking a branded acquisition.
Kate Spade was once part of Fifth & Pacific Cos., which had formerly been known as Liz Claiborne Inc. Liz Claiborne sold off the company’s other brands, until it was left with just Kate Spade. The company then changed its name to Kate Spade & Co. The company currently has a market value of about $2 billion.
The brand has struggled to recover from the last recession. Its value has dropped amid the difficult retail environment. In recent years, the handbag maker has had to rely heavily on discounts to attract customers. The brand has since expanded to selling everything from home goods to apparel, including men’s label Jack Spade.
The company has been seen as an attractive takeover target since 2014. In addition to its own retail stores, the company’s products can be found in department stores such as Saks Fifth Avenue and Nordstrom. It also has outlet stores that sell certain products at lower price points. For the third quarter of its fiscal year, ending Oct. 1, Kate Spade’s sales rose to $317 million, a 14.1 percent year-over-year increase.