FTC succeeds in preventing Tapestry and Capri from merging
In a move that could shake up the luxury fashion industry, the Federal Trade Commission (FTC) has blocked the planned acquisition between Tapestry Inc. and Capri Holdings. The decision, described as a 'clear, unambiguous win' by antitrust attorney Wyatt Fore, was primarily focused on the definition of the 'accessible luxury' handbag market, a term coined by Tapestry.
The FTC sued to block the deal, accusing Tapestry of anticompetitive behavior and potential dominance in the 'accessible luxury' handbag market. The acquisition would have combined Tapestry's Coach, Kate Spade, and Stuart Weitzman brands with Capri's Michael Kors, Versace, and Jimmy Choo, creating one of the largest luxury conglomerates in the United States, behind LVMH.
Henry Liu, director of the FTC's Bureau of Competition, stated that the decision is a victory for consumers seeking access to quality handbags at affordable prices. He argued that the acquisition would have resulted in less competition, leading to higher prices and fewer choices for consumers.
David Swartz, senior equity analyst for Morningstar Research Services, shares a similar view. He believes that even if the appeal is heard by its February 2025 deadline, the acquisition is unlikely to close due to the judge's rejection of Tapestry and Capri's arguments. Swartz suggests that Capri may look for other buyers for its brands if the Tapestry sale does not go through.
Swartz has a more positive view of the acquisition from Tapestry's perspective than many investors and analysts, believing that Michael Kors can be 'fixed'. He notes that Coach is in good shape from Tapestry's perspective. Tapestry called the decision 'disappointing' and argued that the industry is competitive, dynamic, and highly fragmented.
The court has rejected Tapestry and Capri's argument that accessible luxury handbags are a 'discretionary' product. The FTC's complaint also included theories about the elimination of head-to-head competition, but these were not the primary focus of the decision.
After the FTC's decision, it was speculated that Capri Holdings intended to sell its brands Versace and Jimmy Choo, with potential interest implied from industry competitors like Prada, which eventually acquired Versace for 1.25 billion euros. Tapestry and Capri Holdings have announced their intention to appeal the decision.
Wyatt Fore, an antitrust attorney, stated that the court's decision was 'by the book' and based on the presumption that the acquisition would increase concentration in the relevant market, making it presumptively illegal. The decision ensures that Tapestry and Capri will continue to engage in head-to-head competition, at least for the time being.
