On Monday, Coach announced its plan to acquire Kate Spade for $2.4 billion, representing a 27.5 percent percent premium to Kate Spade's Dec. 27 closing price, when Wall Street began to speculate about the takeover. In early morning trading, shares of Kate Spade surged 8.1 percent to $18.43. Coach's stock rose 6 percent to $45.23.
The deal likely comes as no surprise to investors, as Coach CEO Victor Luis, who was appointed in January 2014, has made it known that he is interested in revving up acquisitions to boost the company's presence in "three spaces -- the handbag and accessory space, the footwear space [and] outerwear as well as other luxury retail categories," he told TheStreet in an interview.
Coach's last deal came in January 2015, when it spent $574 million to buy designer footwear maker Stuart Weitzman.
The Kate Spade transaction is expected to close in September.
Here's three companies that should be worried about the combination.
Watchmaker Fossil Group (FOSL) has a license agreement with Kate Spade through 2025 to manufacture its watches. But, Piper Jaffray analysts said in a note on Monday that they are "unsure what a change in control will do to this license." Coach manufactures its watches through Fossil competitor Movado Group (MOV) .
Handbag and accessories brand Michael Kors (KORS) , a competitor to both Kate Spade and Coach, is expected after the deal closes to experience certain near-term negative impacts within the handbag space, according to Piper Jaffray. Although long term, the analysts said the merger may actually help the entire industry as they predict the combined company will "pull back on flash-sales and clean up wholesale."
Schwartz & Benjamin
Schwartz & Benjamin, owned by Steven Madden (SHOO) , currently holds the license with Kate Spade to manufacture the company's shoes through 2020. Piper Jaffray said it does "not believe a change in control will impact this relationship," but it will remain to be seen.