Merger Gossip: Coach, Burberry A Fashionable Pair?

(RTTNews) - U.S. luxury retailer Coach Inc. (COH) is exploring a merger with UK-based peer Burberry Group plc (BRBY.L) to create a $20 billion luxury clothing giant, the Betaville financial blog reported Friday, citing two sources familiar with the matter.

According to the report, Coach is in talks with financial advisers from Evercore for several weeks on a potential merger deal with the British trench coat maker.

Following the June 23 Brexit vote to leave the European Union, the pound's value has collapsed against major currencies. However, this has resulted in UK companies emerging as attractive acquisition targets.

Coach is now from the transformation initiatives put in place two years ago, when the company closed a fifth of its total stores to combat the competition from Michael Kors Holdings Ltd. (KORS).

In August, Coach reported a 48 percent increase in profit for the fourth quarter from the year-ago period, while revenues grew 15 percent.

Burberry, on Tuesday, said its revenue for the first half of the year rose 5 percent, while underlying revenue declined 4 percent.

In early August, Burberry's shares rose on speculation that it could be the target of an activist investor or a takeover bid.

A routine shareholding disclosure filed in July showed an undisclosed investor had briefly accrued a stake of more than 5 percent in Burberry, while a Financial Times report on Burberry's response to the stake led to the share-price move.

Shares of Coach are currently rising more than 2 percent in pre-market activity, while Burberry's shares are gaining more than 3 percent in London.