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Is Coach Preparing to Merge With Burberry?

The rumor mill went haywire Friday after financial blog Betaville suggested Coach Inc. and Burberry had discussed a potential merger.

Shares of the luxury British brand shot up more than 2 percent Friday morning, a few days after falling to their lowest level in a year on the back of disappointing half-year results. Coach investors didn’t have quite the same response to the news: shares of the New York-based design house dipped in early trading.

According to Betaville, two people claiming to be close to the situation said Coach has been working with financial advisors from Evercore for several weeks. One of the sources said senior executives from both brands had met more than once over the summer for informal discussions about a deal.

But Reuters quickly squashed the rumor as “completely speculative.”

“There are no negotiations underway, Burberry is not talking to Coach,” a source told Reuters, while another said that a tie-up could not be in the pipeline since both brands’ strategies were so different.

Exane BNP Paribas analyst Luca Solca echoed that statement.

“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,” Solca said in a note. “A merger of Coach and Burberry would primarily be a merger of problems.”

Coach posted net sales of $1.15 billion in its most recent quarter, an increase of 15 percent attributed to a pickup in its North American direct business as well as double-digit growth in Mainland China and Europe. Burberry, on the other hand, suffered a 4 percent decline in revenue in the six months ended Sept. 30, down to 1.16 billion pounds ($1.42 billion).

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