Rumors that upscale American accessories retailer Coach is considering a merger with luxury fashion house Burberry — reported by UK financial blog Betaville, who spoke with anonymous sources — sent Burberry shares up by as much as 5.9% in London on Friday
However, a Reuters report citing two sources familiar with the matter appeared to quash the report of an offer from Coach, saying that the two companies are not in active talks. Burberry shares largely fell back down after the Reuters report.
According to Betaville, senior executives from Coach and Burberry met over the summer to talk about a potential offer from Coach. Betaville’s sources also suggested that private equity firms including Blackstone are also in discussions about acquiring Burberry. Blackstone denied that report and Burberry and Coach both declined to comment, according to Betaville and Bloomberg.
Declining sales, including at its once-robust Asia operations and falling wholesale business, have increasingly set up Burberry as a takeover target. But it's unclear if the Coach takeover rumors hold any water, as a Reuters report following up on the initial Betaville story suggest there's a lot more smoke than fire to this story.
Regardless, a merger of Coach and Burberry wouldn't be ideal in a tough luxury retail environment hit hard by the strong dollar, according to some analysts.
“A merger of Coach and Burberry would primarily be a merger of problems,” Exane BNP Paribas analyst Luca Solca said in a note cited by Bloomberg. “M&A history in luxury has shown that mergers don’t obviously help in regaining brand traction and desirability.”
Burberry is set to undergo an executive shakeup in the coming months, with Marco Gobbetti to replace Christopher Bailey as CEO next year. Bailey, who has been at the helm for three years during a difficult time for luxury retail, marked by a spending slowdown, had been pressured by shareholders to step aside as the company seeks a turnaround, The Guardian reported in July.
Coach has worked its way out of considerable doldrums to reclaim its place as a more upscale accessories retailer able to demand high prices after relying on discounts and outlets sales that had done damage to its margins as well as its brand.