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Don't Buy the Kate Spade Deal Hype

A mega-sized payoff isn't in the bag for Kate Spade & Co.

Investors in the $3 billion accessories maker have been downright manic as speculation builds of an impending takeover by suitors that are reported to include Coach Inc. and Michael Kors Holdings Ltd. Becoming part of a bigger company could cut Kate Spade's costs and boost its below-industry margins.

Kate Spade stock has climbed about 60 percent in three months, well outpacing the almost 4 percent rise in the S&P 500 during that time. The company is now valued at about 10 times its projected 2017 Ebitda, a multiple more in line with LVMH Moet Hennessy Louis Vuitton SE than Michael Kors and also richer than what Coach commands.

Expectations appear to have soared beyond what's realistic. And yet there are some who still harbor hopes of an even bigger premium.

When Caerus Investors, an activist Kate Spade investor, began pushing for a sale last November, it cited a "reasonable" multiple of at least 12 times Ebitda in arguing a 50 percent premium was warranted. That amounted to about $25 per share at the time.

The stock now trades at about $23, but Caerus's estimates have swelled even higher. It told Bloomberg News last month that Kate Spade was worth "in the high $20s or low $30s." Analysts have also bought into the hype. Cowen & Co.'s Oliver Chen is among the most bullish of those followed by Bloomberg, calling for a takeout price of $27 to $30 a share or "potentially higher depending on synergies and competition."