Coach Inc (COH.N) will buy women's luxury footwear company Stuart Weitzman Holdings LLC, as it looks to expand its high-end offerings to better compete with fast-growing rivals such as Michael Kors Holdings Ltd (KORS.N) and Kate Spade & Co (KATE.N).
Coach, known for its Poppy handbags, said it would buy Stuart Weitzman Holdings from private equity firm Sycamore Partners in a deal valued at up to $574 million.
Analysts, however, called Coach's first ever acquisition unnecessary and distracting, saying the deal could shift its focus from fixing its core handbags business.
Any distraction will complicate matters during a critical turnaround phase, Stifel Nicolaus analysts wrote in a note.
Coach is "paying a premium for a distraction," shelling out nearly twice Stuart Weitzman Holdings' revenue over the past 12 months, Topeka Capital Markets analysts wrote in a note.
Stuart Weitzman Holdings had revenue of about $300 million in the year ended Sept. 30.
New York-based Coach's shares were down about 1 percent at $36.48 in afternoon trading on the New York Stock Exchange.
Companies such as Michael Kors and Kate Spade have eaten into Coach's market share in North America with their affordable and trendier handbags and accessories.
Coach is realigning its business by cutting promotions and shuttering underperforming stores.
The company said on Tuesday it would make an initial cash payment of about $530 million to Sycamore Partners and pay up to $44 million on achievement of certain revenue targets over the three years after the acquisition closes.
Stuart Weitzman will remain the chairman of Stuart Weitzman Holdings and he will pay Coach $2.5 million when the transaction closes. Coach said it expected the deal to close by May.
Sycamore Partners acquired Stuart Weitzman Holdings last year as part of its purchase of Jones Group Inc, the fashion company that owns retail chains Nine West and Jones New York.
Stuart Weitzman Holdings, which has fashion models Kate Moss and Natalia Vodianova endorsing its shoes, has 45 retail stores in the United States and 62 in other countries.
Reuters reported on Monday that Coach was nearing a deal to buy Stuart Weitzman Holdings.
The Wall Street Journal first reported that the two companies were close to a deal.
(Editing by Kirti Pandey)