Handbag retailers Coach and Kate Spade have agreed to combine.

The $2.4 billion transaction, in which Coach (NYSE: COH) will pay Kate Spade (NYSE: KATE) shareholders $18.50 a share, signals a step for both companies to bolster profit margins at a time when luxury retail companies are typically hurting.

The purchase price represents a 28 percent premium to Kate Spade’s closing price as of Dec. 27, the last trading day prior to when the sale process was rumored to be taking place.

Kate Spade confirmed it was reviewing a sale back in February when the company was valued at about $2.8 billion.

Kate Spade’s colorful style has attracted not only millennial shoppers, but also the devotion of another iconic brand.

Kate Spade’s sale process was likely inspired by the pressure it faced from activist hedge fund Caerus Investors, which called for the company to consider a deal on account of a declining share price and management’s inability to reach profit margins in the ballpark of its peers.

To be fair, sales have been slumping across the luxury and retail markets due, in large part, to the gradual drop in mall traffic.

Caerus bought a stake in Kate Spade last year, right around the time when the company — known for its colorful handbags, accessories and apparel — announced its third-quarter results.

“In the third quarter, several macroeconomic factors, including a challenging retail environment and continuing tourist headwinds, impacted our results,” CEO Craig Leavitt said last year, pointing out the consumer’s strong response to Kate Spade collections at full-price.

In the report, Kate Spade revealed that it had direct-to-consumer comparable sales growth of 7 percent, while net sales increased $39 million. And the second quarter saw comparable or same-store sale growth of 4 percent while net sales grew by 14 percent to $320 million compared to last year.

In the fourth quarter of 2016, Kate Spade reported that n et sales increased $42 million, or 10 percent for the fourth quarter on a reported basis. Full year net sales increased $139 million, or 11 percent on a reported basis and increased $166 million, or 14 percent, excluding wind-down operations in 2015.

In the first quarter of 2017, net sales decreased $3 million, or 1 percent, compared to the first quarter of 2016, but achieved double-digit e-commerce comparable sales growth, which helped offset the lack of traffic in brick and mortar stores.

In 2016, Kate Space found itself on the buy side of the M&A table when it scooped up the intellectual property and business assets of Bag Bar, a build-your-own handbag system based in New York. The brand was created by Dee Ocleppo Hilfiger, a handbag designer who is married to Tommy Hilfiger.


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