The US Federal Trade Commission (FTC) has taken legal action to prevent Tapestry's proposed $8.5bn acquisition of luxury fashion company Capri, citing competition concerns.
The merger would bring together Tapestry's Coach and Kate Spade and Capri's Michael Kors brand, which the FTC argues would significantly reduce competition.
The FTC's administrative complaint and subsequent federal court lawsuit aim to maintain the competitive landscape that currently benefits consumers through pricing, discounts, promotions, and innovation.
From this deal, Tapestry would also dominate the accessible luxury handbag market, surpassing every other competitor, the FTC said.
In addition, the merger would not only affect consumer choice but also potentially impact employee wages and benefits, with the combined entity set to employ around 33,000 people globally.
FTC Bureau of Competition director Henry Liu said: “With the goal to become a serial acquirer, Tapestry seeks to acquire Capri to further entrench its stronghold in the fashion industry.
“This deal threatens to deprive consumers of the competition for affordable handbags, while hourly workers stand to lose the benefits of higher wages and more favourable workplace conditions.”
Tapestry entered a definitive agreement to acquire Capri Holdings last August and anticipated $200m in savings from synergies within three years of the deal closing.
In defence of the proposed merger, Tapestry contends that the deal is pro-competitive and pro-consumer, arguing that the FTC has misjudged the market dynamics and consumer shopping behaviour.
It emphasised that the acquisition would consolidate six brands, expanding its reach to a broader set of luxury consumers and geographies, thereby fostering sustainable growth for Capri's brands.
Tapestry, in response to the FTC’s lawsuit, said: “The bottom line is that Tapestry and Capri face competitive pressures from both lower- and higher-priced products. In bringing this case, the FTC has chosen to ignore the reality of today’s dynamic and expanding $200bn global luxury industry.
“We have full confidence in the merits and pro-competitive nature of this transaction. It will bring significant benefits to the combined company’s customers, employees, partners, and shareholders in the US and around the world. We have strong legal arguments in defence of this transaction and look forward to presenting them in court and working expeditiously to close the transaction in calendar year 2024.”
The FTC remains the last regulatory body to approve the merger.
