We Are Removing Kate Spade (KATE) from Investing Ideas

“Game, set and match on the COH/KATE tender completion. I’m getting very little interest from Buy Side in COH long – because the ‘it was a great deal’ call is consensus. But it’s not consensus for the appropriate bullish reasons.

• A fair price for KATE was $23-$25, unless my model is egregiously wrong. But Coach got $18.50
• COH naturally played down synergies – likely to avoid KATE Board from getting sued.
• I’m modeling a 20% earnings beat accordingly for COH. This will likely be accretive on Day 1.
• Here’s a perennial mediocre company that just bought one of the better organic growth stories in Retail for a killer price.
• AND it has the balance sheet – due to price – to either buy something like Jimmy Choo (or Tory Burch?). I don’t like deals…but this is a no-brainer.
• Simply put, KATE shareholders were just proved irrelevant..

The setup for Coach (COH) here is asymmetric from where I sit.