The Federal Trade Commission succeeded in its effort to hit pause on Tapestry Inc.’s $8.5 billion acquisition of Capri Holdings with a preliminary injunction — possibly sinking the mega acquisition.
While the injunction can be appealed, such rulings are only rarely overturned, according to experts.
Technically, the deal is only on hold pending a full trial, but experts said a trial would delay the process long enough that the contract governing the deal would expire and the acquisition would probably be dropped.
Tapestry, which owns Coach, Kate Spade and Stuart Weitzman, inked a deal to buy Capri in August 2023, looking to add Michael Kors, Versace and Jimmy Choo to its portfolio.
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The two companies would have complemented each other, with Tapestry’s abilities to use data to connect with consumers meshing well with Capri, which in turn has a stronger business abroad.
But it was the Michael Kors brand that was really central to the acquisition. Tapestry successfully turned around the Coach brand and was keen to bring its playbook to Michael Kors (although it has been trying to reinvigorate Kate Spade for some time and has thus far fallen short).
The FTC has not stepped into a fashion deal for a generation or more, but decided to make its stand in the accessible luxury handbag market.
Nicole Lindquist, who presented the FTC’s opening arguments at an eight-day hearing in September, said: “This case is about the working and middle class American woman. These women go to the outlet or Macy’s looking for their favorite American brand. She’s looking for something nice…that’s not going to break the bank.”
Half of the consumers buying Coach and Michael Kors bags come from households with annual incomes of less than $70,000, Lindquist said.
“When the biggest, closest competitors merge, that’s bad for American consumers,” she said.
The government’s economic analysis of the transaction said Tapestry, by virtue of buying Capri and eliminating that competition, would be able to raise prices by 17 percent — with a $365 million annual impact to consumers.
But Tapestry’s attorneys pushed back on that case, picking apart the economic argument, how it was constructed and maintaining that Coach and Michael Kors face stiff competition from luxury brands above and mass market players below.
The case also never really did produce an easy definition of the accessible luxury handbag market and what products fit the bill.
But Tapestry ultimately was unable to sway Manhattan Federal Judge Jennifer Rochon, who has now reset the calculus in fashion dealmaking with the ruling.
As Rochon said in her ruling on Thursday, “Antitrust has come into fashion.”
