Kate Spade shares jump on report it could be sold

41/2-YEAR HIGH

Shareholder Caerus Investors had pushed Kate Spade & Co. last month to find an acquirer that could help it improve its profit margins on its luxury handbags, which are popular with millennials. an attractive takeover target ever since it sold the Juicy Couture and Lucky brands in 2013 and 2014, leaving Kate Spade as its sole major nameplate. It instead embarked on a plan to become a lifestyle brand selling everything from apparel to home goods, similar to

with a goal of quadrupling revenue to $4 billion annually.

Kate Spade has the potential to reach that sales target and expand its profit margins, meaning it could fetch US$21 to US$23 a share in an acquisition, Betty Chen, an analyst at Mizuho Securities, said in a note Wednesday. That would mark a premium of roughly 45 per cent to 60 per cent from the shares’ closing price on Tuesday.

“The growth profile coupled with the brand’s unique appeal to millennials and broad-based success across categories ranging from handbags to apparel and jewelry could be attractive to many buyers,”

Kate Spade has been working to reduce its reliance on promotions and sell more products at full price to maintain its brand’s image.

The U.S. luxury industry has suffered from falling sales in recent years, caused by a decline in mall traffic and the rise of e-commerce. The industry’s weakness has fuelled speculation that major brands have considered combining, rather than fighting it out alone.

Caerus has said it first invested in Kate Spade in 2009, when it was owned by parent company Liz Claiborne. It didn’t disclose the size of its stake when it released the letter last month.