U.S. hedge fund Caerus Investors urged Kate Spade & Co, urged to sell itself, saying the handbag and accessories maker would make a great acquisition candidate as its stock traded at a discount to its peers.
Caerus was "increasingly frustrated" by the inability of Kate Spade's management to achieve profit margins comparable to industry peers, the hedge fund told the company's board in a letter that was disclosed on Monday.
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The small New York-based hedge fund, not known for the kind of public activism it is targeting at Kate Spade, did not disclose the size of its stake in Kate Spade. It had a 0.03 percent stake in the company as of Sept. 30, 2015, according to its last disclosure with U.S. regulators.
Separately on Monday, activist investor Barry Rosenstein's Jana Partners LLC revealed a 0.85 percent stake in the company.
Kate Spade's shares were up 7 percent at $17.80, valuing the company at about $2.28 billion.
Caerus said that growth in Kate Spade's revenue and EBITDA (earnings before interest, taxes, depreciation, and amortization) equaled or topped those of its peers, Michael Kors Holding Inc and Coach Inc.
The hedge fund, managed by Ward Davis and Brian Agnew, however, noted that Kate Spade's profit margins were lower than its peers' and that its stock traded at a discount to its peers.
Caerus said Kate Spade still has a large market opportunity yet the equity valuation reflected a low- or no-growth valuation.
"We think Kate Spade would make a great acquisition candidate for a strategic company in the lifestyle accessories category," Caerus said.
Kate Spade did not respond to calls and emails from Reuters seeking comment.
Kate Spade, earlier this month, reported disappointing quarterly same-store sales and said it expected pricing competition to dampen its holiday quarter profits. (Reporting by Jessica Kuruthukulangara in Bengaluru; Editing by Sai Sachin Ravikumar and Savio D'Souza)