The U.S. Federal Trade Commission (FTC) said on Monday that it was suing to block luxury fashion holding company Tapestry’s $8.5 billion acquisition of Capri Holdings over market-domination concerns.
The deal is expected to combine six luxury fashion brands owned by the two companies: Tapestry’s Coach, Kate Spade, Stuart Weitzman, and Capri’s Michael Kors, Versace, and Jimmy Choo.
The FTC said the proposed merger could deprive American consumers of the benefits of the companies’ head-to-head competition on price, discounts, promotions, innovation, design, marketing, and advertising.
“Today, Coach, Kate Spade, and Michael Kors continuously monitor each other’s handbag brands to determine pricing and performance, and they each use that information to make strategic decisions, including whether to raise or lower handbag prices,” it said in a statement.
“If Tapestry acquires Capri, Tapestry would gain a dominant market share in the ‘accessible luxury’ handbag market, dwarfing every other competitor,” the commission stated.
The FTC is also concerned that the merger deal would eliminate the incentive for the two companies to compete for employees and negatively affect their 33,000 employees’ wages and workplace benefits.
“Given Tapestry’s pattern of serial acquisitions, the acquisition of Capri will further entrench Tapestry’s stronghold, making it harder for new brands to both enter the market and have a meaningful presence,” it said.
“This deal isn’t likely to be Tapestry’s last, as the acquisition of Capri will give Tapestry additional leverage to make even more acquisitions in the future,” the FTC added.
The commission vote to file the administrative complaint and authorize staff to seek a temporary restraining order and a preliminary injunction was 5-0, according to its statement.
Tapestry has defended the merger deal, labeling it as “pro-competitive” and “pro-consumer.” It said the FTC “fundamentally misunderstands both the marketplace and the way in which consumers shop.”
It argued that both Tapestry and Capri “operate in an intensely competitive and highly fragmented industry alongside hundreds of rival brands, including both established players and new entrants.”
“The bottom line is that Tapestry and Capri face competitive pressures from both lower- and higher-priced products. In bringing this case, the FTC has chosen to ignore the reality of today’s dynamic and expanding $200 billion global luxury industry,” the company said in a statement.
Tapestry expressed its “full confidence” in the merits and pro-competitive nature of this transaction, saying the deal will bring “significant benefits” to their customers, employees, partners, and shareholders.
“We have strong legal arguments in defense of this transaction and look forward to presenting them in court and working expeditiously to close the transaction in calendar year 2024,” the company stated.
Capri also issued a statement to voice its disagreement with the FTC’s decision. The company said that it plans to “vigorously defend this case in court alongside Tapestry and complete the pending acquisition.”
“The market realities, which the government’s challenge ignores, overwhelmingly demonstrate that this transaction will not limit, reduce, or constrain competition,” the company stated.
“Tapestry and Capri operate in the fiercely competitive and highly fragmented global luxury industry. Consumers have hundreds of handbag choices at every price point across all channels, and barriers to entry are low,” it added.
The FTC is the only regulator that did not approve this transaction. However, Capri said it remains confident in Tapestry’s merger deal and the value it will bring to all stakeholders.
Tapestry first announced the proposed merger with Capri in August 2023. The companies together generated global annual sales exceeding $12 billion in 2022, with a presence in more than 75 countries.
Under the terms of the transaction, Capri’s shareholders will receive $57 per share in cash for a total enterprise value of approximately $8.5 billion, according to Tapestry’s statement last year.
