Judge Blocks Tapestry’s $8.5 Billion Acquisition of Capri, Shaking Up Luxury Fashion Market

A federal judge has halted Tapestry’s proposed acquisition of Capri, a merger that aimed to consolidate two of the largest luxury fashion houses in the United States. The ruling, issued by Judge Jennifer Rochon on Thursday, comes after a brief trial held last month in New York and follows a motion for a preliminary injunction filed by the Federal Trade Commission (FTC), according to CNBC.

The proposed merger, valued at $8.5 billion, would have united Tapestry’s Coach, Kate Spade, and Stuart Weitzman with Capri’s Versace, Jimmy Choo, and Michael Kors, thereby placing six prominent fashion brands under one corporate umbrella. However, the FTC contended that such a consolidation would adversely affect competition, particularly in the affordable handbag market, and could potentially harm employees through diminished salaries and benefits.

In response to the ruling, Tapestry’s stock experienced a surge of 10%, while Capri’s shares plummeted by approximately 50%. The luxury retailer expressed disappointment in the court’s decision and announced plans to appeal, emphasizing the competitive nature of the fashion industry. “We believe this transaction is pro-competitive and pro-consumer,” Tapestry stated, arguing that the merger would allow for enhanced product offerings and improved customer access.

The merger agreement stipulates that Tapestry would be liable for up to $50 million in expenses incurred by Capri if the deal fails to receive regulatory approval. Conversely, Capri faces a breakup fee of $240 million should it choose to terminate the merger.

Related: Federal Antitrust Trial Explores Potential Impact of Tapestry-Capri Merger

Judge Rochon’s rationale for the injunction has not yet been disclosed, as a detailed opinion remains sealed from public view. The FTC had initially filed suit to block the merger in April, asserting that it could lead to higher prices for consumers and reduced incentives for quality improvement in the luxury market. “Today’s decision is a victory not only for the FTC but also for consumers across the country seeking access to quality handbags at affordable prices,” stated Henry Liu, director of the FTC’s Bureau of Competition, per CNBC.

The ruling comes at a time when consumers are increasingly price-sensitive due to rising inflation. The Biden administration, along with Democratic presidential candidate Vice President Kamala Harris, has advocated for the use of governmental authority to maintain competition and control prices. Meanwhile, Republican candidate Donald Trump has also criticized inflationary trends and proposed tariffs to tackle the issue.

During the trial, the FTC presented evidence suggesting that the merger would likely lead to increased prices for handbags and accessories, while Tapestry and Capri’s legal teams argued that their primary competitors are not each other. They pointed to a dynamic market with diverse consumer options, particularly highlighting the influence of social media trends on purchasing behavior.

Source: CNBC