Shares in Burberry soared over 7 percent on Friday on increasing speculation that US rival Coach could be looking to make an approach.
Shares in Burberry have fallen considerably since their highs of 1900p back in February last year. The luxury brand’s market update earlier this week caused shares to take a further hit, with a slowdown in sales in Hong Kong and the slide in US demand offsetting the foreign currency benefits from the weaker pound.
According to Betaville, Coach, listed on the New York Stock Exchange with a market cap of US$10 billion, has been working with Evercore for several weeks on a possible deal.
“Burberry could indeed be seen as the British Coach, as we as analysts had pointed out years ago,” said Luca Solca, head of luxury goods at Exane BNP Paribas.
“Yet, contrary to Coach, most of the efforts at Burberry in the past 20 years have gone in the direction of elevating the brand and moving it into mega-brand price territory, rather than squarely into accessible luxury.”
“A more aggressive commercial strategy could be that of running Burberry harder – the ‘American way,'” Solca continued.
“As promising as this looks short-term, this would increase the risk of future brand trivialisation and compromise long-term growth and valuation multiples. We have seen this meteoric trajectory at work several times already, at Coach, Michael Kors and Abercrombie & Fitch.”
Solca went on the comment, “A merger of Coach and Burberry would primarily be a merger of problems,” he said. “M&A history in luxury has shown that mergers don’t obviously help in regaining brand traction and desirability, while cost efficiency in the face of declining brand momentum are often just a way to run in order to stand still.”
Both Coach and Burberry declined to comment.