Burberry shares surge following Coach merger rumours

UPDATE Sources at Reuters now claim that Burberry and Coach are not currently actively discussing a potential merger. "This is completely speculative. There are no negotiations underway, Burberry is not talking to Coach," said one source. The other source, who is said to have first-hand knowledge of the matter, stressed that a merger could not be on the cards as the two companies had very different strategies.

"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," said Exane BNP Paribas analyst Luca Solca. "A merger of Coach and Burberry would primarily be a merger of problems," he said, noting that there were a few examples of mergers in the luxury sector which had successfully helped a brand regain its former position.

Burberry has declined to comment on the rumours.

London - Could a future merger between US premium retailer Coach and British heritage fashion house Burberry be on the cards?

Coach is said to be working with corporate financiers on a potential merger with Burberry to create a massive 20 billion dollar luxury fashion house, according to sources reported financial blog Betavillle today. The US retailer is believed to have been in discussion with financial advisers from Evercore for several weeks now on a deal to merge its business with the iconic trench coat producer.

Coach and Burberry said to be working on potential merger

Senior executives from Coach and Burberry are said to have met in private a few times over the summer to discuss a deal which would likely value Burberry at 18.50 pounds a share. Earlier this year, the Financial Times reported that Burberry asked its defence advisers at Robey Warshaw and corporate broker Morgen Stanley to help prepare a defence for a potential bid.

Burberry shares traded 3 percent higher at 1,494 pence at 1:59 p.m. in London after rising as much as 8.1 percent, the biggest intraday gain since Feb. 26, following the financial post, reported Bloomberg. Meanwhile, Coach traded up by 1 percent from Thursday’s close in New York. However, in spite of speculation a potential merger could still be problematic.

“A merger of Coach and Burberry would primarily be a merger of problems,” said Exane BNP Paribas analyst Luca Solca in a note to Bloomberg. “M&A history in luxury has shown that mergers don’t obviously help in regaining brand traction and desirability.”

Both luxury brands are currently struggling with the global slowdown in luxury spend, and have been busy reorganising internal to keep consumer attention. Burberry previously appointed Marco Gobbetti as its new CEO, to replace Christopher Bailey next year. Coach recently took on Wendy Kahn, a veteran from Valentino, to oversee footwear label Stuart Weitzman which is acquired last year.

Photos: Burberry and Coach Facebook