Coach Inc. (NYSE: COH) agreed to buy handbag maker Kate Spade & Co. (NYSE: KATE) for $2.4 billion following months of talks, helping the luxury brand cope with an industry racked by deep discounting and sluggish demand.

The $18.50-a-share transaction represents a premium to Kate Spade’s price when deal speculation first surfaced in December, but it’s well below the amount investors were betting on in more recent months.

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The long-anticipated deal brings a high-profile brand to Coach and may help remedy the handbag industry’s broader woes. The companies have struggled to get customers to pay full price, and a reliance on the beleaguered department-store channel has hurt sales. That’s led Coach and other to focus more on its own specialty stores, an area where it hopes to use Kate Spade to fuel growth. In 2015, Coach bought luxury shoe company Stuart Weitzman.

“Coach’s extensive experience in opening and operating specialty retail stores globally, and brand building in international markets, can unlock Kate Spade’s largely untapped global growth potential,” Victor Luis, chief executive officer of Coach, said in a statement.

The takeover price is 27.5 percent above Kate Spade’s closing price on Dec. 27, the day that reports about a possible sale first appeared. As deal speculation raged in February, the shares climbed above $24, a sign investors expected to get a much richer price than they ultimately received.

Kate Spade investor Caerus Investors had pushed the fashion house to put itself up for sale. The investment firm said that while the company was generating solid growth, it needs better management to help boost its profit margins.

Perella Weinberg Partners LP advised Kate Spade, while Evercore Group LLC acted for Coach. Coach plans to finance the deal, which it expects will close in the third quarter, with senior notes, bank term loans and about $1.2 billion of cash, according to the statement.

Coach chief financial officer Kevin Wills said the complementary nature of the businesses should bring $50 million in cost savings in three years after the deal closes. The idea is to improve scale and inventory management, as well as streamline Kate Spade’s supply chain.

The acquisition will add to earnings from fiscal 2018, and lead to “double-digit accretion” by the following year, Coach said.

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