Handbag maker Coach Inc. (NYSE:COH) has announced it has reached a deal to acquire its smaller rival, Kate Spade & Co. (NYSE:KATE), for $2.4 billion. Coach has reportedly agreed to pay $18.50 per share in an all-cash offer, representing 9 percent premium to Kate Spade’s closing price on Friday. The deal is expected to close in the third quarter of 2017.

The companies announced the deal on Monday. They say they will be able to save money and produce products for lower costs by combining. Coach said it expected the deal to add to adjusted earnings in fiscal 2018 and generate around $50 million in savings within three years.

The deal is part of Coach’s effort to resonate more with younger consumers. Coach CEO Victor Luis said in a statement, “Kate Spade has a truly unique and differentiated brand positioning with a broad lifestyle assortment and strong awareness among consumers, especially millennials.” Millennials represent 60 percent of Kate Spade’s customers.

Coach reached a deal recently with celebrity fashion icon Selena Gomez, who will appear in the brand’s ad campaigns starting in the second half of 2017. Gomez is a favorite among millennials. She has more than 47 million followers on Twitter and is the most-followed individual on Instagram.

Coach has ambitions of building a multibrand luxury conglomerate. Coach has been seen as the favorite to buy British accessories brand Jimmy Choo after the label was put up for sale earlier this month. There is speculation that Coach could also buy Burberry, Britain’s biggest luxury brand by sales.

Earlier this year, Kate Spade announced it was actively considering strategic alternatives to maximize value for shareholders. Globally, Kate Spade has 133 specialty stores, 82 outlet stores and 54 stores similar to franchises. The company opened 52 new locations in 2016.

Coach has been reducing its retail footprint in North America, closing 30 retail stores in the region in the fiscal year ended July 2. At the end of the period, Coach has 228 retail stores and 204 outlet stores in North America, 522 Coach locations internationally and 75 Stuart Weitzman stores. Luis said only 35 percent of Kate Spade stores overlap with Coach locations.

Shares of Kate Spade rose more than 8 percent Monday morning following the announcement of the deal. Coach’s stock saw a 6 percent increase. As of Friday’s close, shares of Coach have risen nearly 7 percent over the past 12 months.

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