A federal judge blocked Tapestry’s acquisition of Capri on Thursday, following a brief trial last month in New York. This is one of the most significant mergers in the fashion industry, promising to create a leading American luxury giant with six iconic brands: Coach, Kate Spade, and Stuart Weitzman from Tapestry combined with Versace, Jimmy Choo, and Michael Kors from Capri.
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In her ruling, Judge Jennifer Rochon granted the Federal Trade Commission’s (FTC) request for a preliminary injunction, halting the $8.5 billion merger indefinitely and placing both companies in a challenging position.
Stock markets reacted immediately, with Tapestry’s shares surging 10% while Capri’s shares plunged nearly 50%. This volatility underscores the significant impact of the ruling on investor expectations for both companies’ futures.
In an official statement, Tapestry announced it would appeal the ruling, emphasizing, “Today’s decision granting the FTC’s request for a preliminary injunction is disappointing and, we believe, incorrect on both the law and the facts. Tapestry and Capri operate in an intensely competitive, constantly expanding, and fragmented industry with numerous established and emerging players.” The company added that they remain confident that this merger “will benefit both consumers and the market” by enhancing product quality and improving their responsiveness to consumer demands.
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Merger Agreement Terms for Reimbursement
Under the merger agreement, Tapestry will reimburse Capri for expenses incurred during the deal’s processing if it ultimately fails to gain approval. If either company withdraws due to regulatory disapproval or a permanent, non-appealable government injunction, Tapestry has agreed to pay Capri between $30 million and $50 million. In contrast, if Capri decides to cancel the merger, it will owe a breakup fee of $240 million.
The exact reasoning behind Judge Rochon’s decision remains unclear, as the detailed opinion has been sealed and is currently inaccessible to the public.
FTC’s Concerns: Consumer and Employee Welfare
The FTC filed its lawsuit to block the merger in April, arguing that if the two companies combined, it would harm consumers by reducing competition in the affordable handbag sector and potentially negatively impacting employee wages and benefits. Tapestry countered, stating that consumers would benefit from the merger, allowing the company to keep up with trends more quickly, offer better products, and reach a broader customer base.
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FTC Bureau of Competition Director Henry Liu praised the court’s decision, stating: “Today’s decision is a victory not only for the FTC but also for consumers nationwide who seek quality handbags at affordable prices. This decision ensures that Tapestry and Capri will continue competing head-to-head for the benefit of the American public.”
The ruling comes at a sensitive time when consumers are more price-conscious than ever after years of rising inflation. President Biden’s administration and Democratic Vice President Kamala Harris, a candidate in the upcoming election, have pushed the federal government to use its power to maintain competition and keep prices low. Republican candidate Donald Trump has also criticized inflation and proposed tariffs as a control measure.
FTC’s Tough Stance Under Lina Khan’s Leadership
Under Chair Lina Khan, the FTC has taken aggressive measures to block mergers and acquisitions in grocery, technology, and fashion. In last month’s trial, key witnesses for the FTC presented research showing that the merger could increase retail prices for handbags, accessories, and apparel, while reducing the merged company’s incentive to invest in product quality.
Lawyers for Tapestry and Capri argued that the companies are not direct competitors, and that the handbag market now offers consumers a wealth of options, with fashion trends shifting rapidly in the era of TikTok.
