In opposing Tapestry’s takeover of Capri, a Manhattan magistrate followed the advice of the U.S. Federal Trade Commission (FTC), ruling that a merger would be an obstacle to competition in the accessible luxury bag segment. Tapestry has appealed.
In the USA, as the Kamala Harris-Donald Trump battle enters its final phase, another debate is raging: would a merger between Tapestry (Coach, Kate Spade, Stuart Weitzman) and Capri (Michael Kors, Jimmy Choo, Versace) favor or harm the American consumer? In short, would it or would it not favor competition?
On October 24, a federal judge in Manhattan ruled on this issue, blocking the acquisition of Capri by its competitor Tapestry. In her decision, Magistrate Jennifer Rochon argued that there was “evidence that this merger would lessen competition”.
Dominant position?
The case began after Tapestry expressed its desire to acquire Capri, in August 2023. Six months later, the FTC, the US competition authority, took legal action against the creation of such a group. In its view, it would have enjoyed a dominant position in the accessible luxury handbag segment.
Of the six brands brought together by the new entity, two (Coach and Kate Spade) are basically leather goods specialists, and fashion designer Michael Kors himself owes much of his success story to his reasonably priced it bags. For the FTC, the new American giant, deprived of competition, would then be free to raise prices…
The FTC’s decision took everyone by surprise, as lawsuits for risks of dominance usually affect sectors other than fashion, which is considered highly competitive, with a multitude of players.
Judge insensitive to Tapestry and Capri’s arguments
Tapestry and Capri had challenged the FTC’s decision.
John D. Ido, CEO of Capri Holdings, had argued that a deal with Tapestry would bring value to Tapestry shareholders, offer new opportunities to Tapestry employees, and allow Versace, Jimmy Choo and Michael Kors to expand.
This transaction will not limit, reduce or restrict competition,” he said. Tapestry and Capri operate in the highly competitive and fragmented global luxury fashion industry. Consumers have hundreds of handbag choices at all price points, in all channels, and barriers to entry are low.
For its part, Tapestry argued during a three-week civil trial last September that the deal was necessary to combat fierce competition from European luxury players.
But the Manhattan judge was not sympathetic to these arguments. Several observers pointed out that her decision to oppose the merger was a victory for the Biden administration, which had made it a priority to combat rising consumer prices, against a backdrop of galloping inflation….
Tapestry’s appeal
But Tapestry is not throwing in the towel. In a press release, the group indicated its intention to appeal against a ruling it considers “factually and legally incorrect”.
Wall Street’s reactionto the stalled merger was mixed. Capri shares plummeted 47% in after-hours trading on the New York Stock Exchange. With sales down 8.4% at constant exchange rates to $5.17 billion in 2023-2024, Capri was counting on its merger with Tapestry to give it new impetus.
On the other hand, Tapestry shares rose by 12%. The price proposed by the group to acquire Capri ($8.5 billion) had been judged excessive by a number of analysts.
Tapestry posted sales of $6.7 billion in its last fiscal year, ending June 2024.
Green light in Europe and Japan
The twists and turns across the Atlantic in the Capri-Tapestry soap opera are all the more surprising given that the regulatory authorities in the European Union and Japan themselves gave the green light to this decision earlier this year.
It is estimated that the new group, with its 33,000 employees, would have represented sales of $12 billion, or 6% of the global luxury apparel and accessories market ($200 billion). But the creation of an American luxury group capable of competing with its European rivals has once again been postponed indefinitely…
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Read also > Capri and Tapestry defend proposed merger in court
Featured Photo: © Mickael Kors
