It is a well-known that Kate Spade & Co. (KATE 22.80), the handbag and accessories maker, has been in active discussions to sell the company. That understanding has given its stock a huge boost in recent months, yet shares of KATE are down big this morning following a Reuters report indicating Kate Spade & Co. wants to take more time to negotiate a possible sale after getting an offer from Coach (COH 40.62) last week.
At the moment, KATE shares are trading 11% lower in pre-market action. That might seem excessive considering KATE is reportedly still mulling a potential sale of the company; however, several considerations are coming into play that help explain the negative reaction:
- If a company has an offer on the table, but is still looking for more time to negotiate a potential sale, that suggests the offer on the table is a low one
- The anonymous sources mentioned in the Reuters article reportedly said, if KATE was to be sold, it would very likely happen at a level below Monday's closing price of $22.80, which translates to a market capitalization of about $2.9 billion
- There is concern that KATE's quarterly sales and/or earnings results will disappoint and either upend a possible sale or lead to a lower selling price; and
- The possibility remains that no sale will happen
When it became known in late December that Kate Spade & Co. was mulling a possible sale, shares of KATE were trading around $15.00 per share. They eventually moved as high as $24.21 in mid-March, so the writing is on the wall that the stock could be subject to material downside risk if a sale doesn't get done.
Michael Kors (KORS 38.04) has also been named as possibly being interested in acquiring Kate Spade & Co., yet it has not come to the table with any offer to this point, according to Reuters.
There could be more yet to the Kate Spade & Co. acquisition story, but the latest chapter highlights the likelihood that a premium offer isn't in the (hand)bag, which is why KATE is getting clipped this morning.