For example, the most recent merger talk might be between Coach Inc and Burberry Group PLC, wherein the former would acquire the latter. However, if this does happen, it does not appear that it would be for the sake of pushing growth.
“If rumors are in fact true, it’s a defensive move instead of an offensive move. This would be a merger around cost-cutting, not revenue growth,” explains Scott Galloway, founder and chairman of business intelligence firm L2 Inc. He notes that the retail sector is, in fact, struggling and as such, companies have found that traditional growth may no longer be an option. Instead, penny-pinching may be the best strategy. He adds, “The pitch to shareholders and boards would be around synergy which means cost-cutting.”
According to financial site Betavile, despite a jump in premarket activity (on heels of the news), Coach (COH) is down 0.6 percent on the day, so far, but is currently working with advisers at Evercore on a new deal that could potentially bring make them a $20 billion company. Or, rather, a new deal that would create a new company of that size, in which they would likely “have a significant stock element.”
Burberry (BRBY), on the other hand Burberry is currently up more than 3 percent.
Galloway goes on to say, “Both are great brands that have struggled of late. These are the allied powers, but it’s not immediately evident to me what the consumer benefit is of having them both under the same house… The reason why the majority of mergers fail is they underestimate the complexity of integration and overestimate the benefits of synergy.”
Of course, analysts are quick to inquire if the two companies will be able to work together. They ask: “Can Coach and Burberry continue on their independent paths of improving performance while also learning, sharing, and benefiting each other?… And will these initiatives ultimately make for a larger, stronger company while increasing returns for investors?”
Indeed, Burberry is more of a lifestyle brand concentrated mostly in the United Kingdom and Europe, characteristics that Coach would certainly benefit from. Analysts add: “Further, Burberry’s handbags are offered at a higher price point range compared to Coach, and Coach could leverage its strong U.S. distribution to benefit the European brand.”