Kate Spade, Walton Brown Launch JVs in Asia

Kate Spade & Company and Walton Brown, a subsidiary of The Lane Crawford Joyce Group, a fashion retail and brand management group in Asia, have formed joint ventures focused on scaling and accelerating Kate Spade's growth in Greater China, continuing its geographic expansion plans. The newly formed partnership will leverage the expertise of Walton Brown, and the global demand for Kate Spade products, to establish a strategic network of stores in key cities, enhanced by a robust organizational and marketing platform across China, Hong Kong, Macau and Taiwan.

Craig A. Leavitt, Kate Spade CEO, said, "This partnership is a pivotal next step as Kate Spade & Company continues to advance along a key axis of our growth strategy – geographic expansion – while also continuing our partnered approach to margin expansion."

Leavitt added, "Walton Brown is the right strategic partner as we position Kate Spade & Company for sustainable growth, allowing us to take a holistic approach to expansion, influence consumers and leverage resources across the Greater China region. Walton Brown's relationships, operations and marketing expertise will help us create a cohesive foundation of stores surrounded by a vibrant ecosystem to help deepen our connection with consumers in Asia."

Thomson Cheng, president of Walton Brown, added, "Kate Spade & Company already has strong appeal and demand in the market, with even stronger growth potential. Together, we will build upon this momentum to establish a broader foundation and fuel Kate Spade & Company's scale in the region. Drawing upon our best-in-class expertise and network, we look forward to partnering with Kate Spade & Company to enhance its global presence during this exciting time in the Company's transformation." 

Kate Spade & Company also announced a share purchase agreement with E-Land Fashion China Holdings Limited, its current partner in China, to acquire E-Land's 60 percent interest in KS China Co., Limited. The transaction is expected to close in February 2015.

The partnership will align Kate Spade's existing businesses in China and Hong Kong, Macau and Taiwan under one combined structure. Following the formation of the partnership, both Kate Spade Hong Kong, Limited, and Walton Brown will own 50 percent of the shares of Kate Spade China and KS HMT Co., Limited, the holding company for the Company's wholly owned businesses in Hong Kong, Macau and Taiwan. With an equal partnership structure, Kate Spade and Walton Brown will actively manage the business together. The partnership will have an initial term of 10 years.

The combined transactions are expected to include a $36 million payment to E-Land to acquire its interest in Kate Spade China and terminate related contracts and the receipt of approximately $21 million from Walton Brown for their interest in the joint ventures subject to adjustments. In addition, the Company estimates that it will incur restructuring and transaction costs of approximately $5 million, including severance, lease terminations and asset impairments in order to convert the wholly owned businesses in Hong Kong, Macau and Taiwan into a joint venture.  These transactions are consistent with the Company's partnered and capital-efficient approach to geographic expansion and lay the foundation for a solid expansion strategy in the region with a long-term potential of 100 stores.

Kate Spade will continue wholesale distribution to the joint venture in China and expects to begin wholesale distribution to Hong Kong, Macau, and Taiwan through the joint venture during the first quarter of 2015.  Accordingly, the company will no longer consolidate the operations for the businesses in Hong Kong, Macau and Taiwan, which had net sales of approximately $34 million in 2014 and will account for its investments in the partnership under the equity method of accounting.  The Company's distribution agreements with Valiram in Singapore, Malaysia, Indonesia and Australia and AT Luxury in Thailand are not affected by these transactions.
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