FTC Blocks Tapestry, Capri $8.5 Billion Merger -- Barrons.com

By Sabrina Escobar

The Federal Trade Commission is seeking to block luxury retailer Tapestry from purchasing Capri Holdings for $8.5 billion, arguing that the acquisition would curb competition in the market for less expensive luxury handbags.

The FTC's lawsuit, filed Monday, temporarily halts the transaction, which was expected to close this calendar year.

Tapestry stock was down 1.2% in premarket trading Tuesday, while Capri was 1.7% lower.

Tapestry, which owns Coach and Kate Spade, disclosed plans to acquire Capri, the parent company of Michael Kors and Jimmy Choo, last August. The merger would create a luxury conglomerate comprised of six brands that analysts say could better compete with the likes of LVMH Moët Hennessy Louis Vuitton and Gucci parent's, Kering.

The heart of the FTC's argument is that the transaction would eliminate both companies' real competitive threats: each other. Brands such as Coach, Kate Spade, and Michael Kors operate within the "accessible luxury" space and price their products similarly.

Regulators argue that a merger of the two could mean that consumers could have to pay higher prices for these more affordable handbags. It would also "entrench" Tapestry's stronghold in the affordable luxury space, the FTC said, making it harder for new brands to enter the market and have a meaningful presence.

"The proposed merger threatens to deprive millions of American consumers of the benefits of Tapestry and Capri's head-to-head competition, which includes competition on price, discounts and promotions, innovation, design, marketing, and advertising," the FTC said in a statement Monday.

Tapestry and Capri pushed back against the FTC's claims, saying that both companies operate in a competitive and "highly fragmented" industry. They said consumers have a host of choices when shopping for luxury products.

"The bottom line is that Tapestry and Capri face competitive pressures from both lower- and higher-priced products," Tapestry said in a statement Monday. "In bringing this case, the FTC has chosen to ignore the reality of today's dynamic and expanding $200 billion global luxury industry."

Both companies noted in their news releases Monday that the transaction has already secured the go-ahead from other regulators, including the European Union and Japan.

"Capri intends to vigorously defend this case in court alongside Tapestry and complete the pending acquisition," the company said.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

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April 23, 2024 09:05 ET (13:05 GMT)

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