2 weeks ago
Pedestrians walk past a Coach store and a Michael Kors store.
Scott Olson | Getty Images
The U.S. Federal Trade Commission on Monday sued to block the $8.5 billion acquisition of Capri Holdings by Coach and Kate Spade's parent company, Tapestry.
The move by regulators brings at least a temporary halt to a deal that would marry two major names in American luxury retail and put six fashion brands under a single company: Tapestry's Coach, Kate Spade and Stuart Weitzman and Capri's Versace, Jimmy Choo and Michael Kors. With the transaction, the luxury brands could be poised to better compete with European luxury names, such as Burberry and LVMH's Louis Vuitton.
In a news release, the FTC said the combined company would harm shoppers and employees.
"With the goal to become a serial acquirer, Tapestry seeks to acquire Capri to further entrench its stronghold in the fashion industry," said Henry Liu, director of the FTC's Bureau of Competition. "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 favorable workplace conditions."
Tapestry argued the federal agency "fundamentally misunderstands both the marketplace and the way in which consumers shop."
In a statement, the company said it is competing for shoppers who shop across brands, channels and price points.
"The bottom line is that Tapestry and Capri face competitive pressures from both lower- and higher-priced products," it said. "In bringing this case, the FTC has chosen to ignore the reality of today's dynamic and expanding $200 billion global luxury industry."
Tapestry announced the proposed acquisition in August. The deal had been expected to close in 2024. In a financial filing on April 10, Tapestry said it had secured approval from regulators in Europe and Japan, but was still waiting for the approval of U.S. officials.
When Tapestry unveiled the deal, CEO Joanne Crevoiserat told CNBC that the combined companies would be able to reach more customers across the globe. Together, the two companies would have over $12 billion in annual revenue and a presence in more than 75 countries.
Both Tapestry and Capri have been under pressure, as consumers continue to be choosier with discretionary spending. Yet Capri, in particular, has been more vulnerable because of its heavier reliance than Tapestry on department stores and other wholesale retailers.
Led by Crevoiserat, Tapestry has raised the profile of Coach's brand, attracted younger shoppers, and tried to lean on fashion and loyalty, rather than deep discounts, to drive higher sales and profits. The vast majority of Tapestry's sales are through its own website and stores, with wholesale accounting for only about 10% of sales globally in the most recently reported fiscal quarter.
As of April 19, shares of Tapestry are up about 10% so far this year compared with the stock of Capri, which has fallen about 24% over the same period.
This story is developing. Please check back for updates.
