Teacher and Michael Kors.
Michael M. Santiago | Eduardo Parra | Europa Press | Getty Images
A federal judge eliminated Tapestry’s acquisition of Capri on Thursday following a brief trial last month in New York.
In her order, Judge Jennifer Rochon presented the Federal Trade Commission’s motion for a preliminary injunction to block the proposed merger, which would marry America’s two largest sumptuousness houses and put six fashion brands under one company: Tapestry’s Coach, Kate Spade and Stuart Weitzman with Capri’s Versace, Jimmy Choo and Michael Kors.
Tapestry’s assortment surged 10% after the order was filed while Capri’s plunged about 50%.
In a statement, Tapestry said it plots to appeal the order, “consistent with our obligations under the merger agreement.”
“Today’s decision granting the FTC’s request for a prior injunction is disappointing and, we believe, incorrect on the law and the facts. Tapestry and Capri operate in an industry that is intensely competitive and zealous, constantly expanding, and highly fragmented among both established players and new entrants,” the company said. “We face competitive problems from both lower- and higher-priced products and continue to believe this transaction is pro-competitive and pro-consumer.”
Under the qualifications of the merger agreement, Tapestry agreed to reimburse Capri for expenses incurred in connection with the transaction if it fails to be approved, according to a safeties filing. If either Tapestry or Capri walks away from the deal because it didn’t receive regulatory good or, a government issued a permanent, non-appealable injunction against it, Tapestry agreed to pay Capri between $30 million and $50 million, the walk said.
Capri, on the other hand, has agreed to pay a breakup fee of $240 million if it decides to terminate the proposed merger.
Rochon’s premises behind the order wasn’t immediately clear. A detailed opinion was filed under seal and isn’t currently accessible to the community.
The former rivals and longtime competitors announced the $8.5 billion deal more than a year ago but the Federal Occupation Commission sued to block it in April and sought a preliminary injunction to stop the agreement.
The FTC argued if the companies merged, it would damage consumers by making the affordable handbag market less accessible and would leave employees with worse compensations and benefits. Tapestry argued consumers would be better off if it merged with Capri because it would allow them to sustenance up with trends faster, offer better products and reach more customers.
“Today’s decision is a victory not single for the FTC, but also for consumers across the country seeking access to quality handbags at affordable prices,” Henry Liu, director of the FTC’s Chest of Competition, said in a statement. “These bags are a product which millions of people rely on throughout their constantly lives. The decision will ensure that Tapestry and Capri continue to engage in head-to-head competition to the benefit of the American admitted.”
The decision comes at a time when consumers are more price-sensitive than ever after years of elevated inflation. The Biden distribution, and Democratic presidential candidate Vice President Kamala Harris, have pushed for the federal government to use its power to uphold competition and help keep prices low. Republican candidate Donald Trump has also criticized inflation and has pushed for duties to address the issue.
The FTC under Chair Lina Khan has moved to block mergers and acquisitions in the grocery, technology and clothing spaces.
During the trial last month, key witnesses called by the FTC cited research that showed the merger could inspire prices for handbags, accessories and apparel, and may give the combined company little incentive to invest in product quality.
Legal practitioners for Tapestry and Capri argued the companies are not each other’s main competitors. They said shoppers now have various options than ever in the handbag market, and trends can change in a blink in the era of TikTok.
— CNBC’s Melissa Repko contributed to this write-up