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Shares of Capri, the owner of fashion brands including Michael Kors, nearly halved on Friday after a US judge blocked its proposed $8.5bn deal with Tapestry, in a big win for antitrust regulators.
Judge Jennifer Rochon’s ruling on Thursday freezes the deal — which would have combined brands including Michael Kors, Kate Spade and Coach — while the Federal Trade Commission conducts its own internal proceedings.
Capri’s stock plunged 48.8 per cent on Friday. Tapestry’s stock rose 13.5 per cent.
“Today’s decision is a victory not only for the FTC, but also for consumers across the country seeking access to quality handbags at affordable prices,” said Henry Liu, director of the FTC’s bureau of competition, in a statement. “The decision will ensure that Tapestry and Capri continue to engage in head-to-head competition to the benefit of the American public.”
The FTC first sued to block the deal in April, arguing that the merger would result in higher handbag prices for consumers and a lower quality of products — specifically in a slice of the market the agency defined as “accessible luxury”.
“Antitrust has come into fashion,” Rochon wrote at the start of her 169-page ruling. Her decision rested in part on whether the deal would hamper competition. Combined, the companies would have a market share of about 59 per cent, according to one economist who testified in court, far higher than the 30 per cent threshold that is “considered to threaten undue concentration”.
“That there is a broad market for handbags overall does not negate the existence of a relevant submarket of affordable-luxury handbags,” the judge wrote.
In court, Tapestry and Capri argued that the handbag sector was brimming with competition, not only with other companies in their price bracket, but also with products from high-end brands to more affordable ones.
“Today’s decision granting the FTC’s request for a preliminary injunction is disappointing and, we believe, incorrect on the law and the facts,” Tapestry — the parent of Coach, Kate Spade New York and Stuart Weitzman — said in a statement.
It added that both companies “operate in an industry that is highly competitive”, with pressure from both legacy brands and new entrants. “We intend to appeal the decision, consistent with our obligations under the merger agreement.”
Capri — whose brands include Michael Kors, Versace and Jimmy Choo — did not immediately respond to a request for comment.
Both sides made their arguments during a mini-trial before Rochon in Manhattan last month. While the hearings were only a precursor to further official proceedings, the court’s decision is pivotal for whether the deal goes through at all, since the transaction needs to close by February.
Some investors watched the trial like hawks. So-called merger arbitrage traders, who buy stakes in companies that are being acquired in the hope that the deal will go through and shares will eventually rise, attended the testimony to glean any indication of which way the judge was leaning.
The ruling is also expected to have consequences for fashion houses globally, which before now did not generally worry about antitrust scrutiny. European fashion giants such as LVMH and Kering, for instance, have grown into powerhouses through serial acquisitions.
While handbags are discretionary items and might not have the same impact on shoppers as groceries, Rochon wrote that “downplaying the importance of handbags” ignores that they are “important to many women, not only to express themselves through fashion but to aid in their daily lives”.
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