FTC Sues to Block Tapestry’s $8.5B Takeover of Capri

Tapestry’s Inc.’s mega $8.5 billion deal to buy Capri Holdings came under the microscope of regulators at the Federal Trade Commission — and they didn’t like what they saw. 

In a highly unusual move for the fashion industry, the FTC sued on Monday to block the acquisition, which was first agreed to in August and would bring together Tapestry’s Coach, Kate Spade and Stuart Weitzman brands with Capri’s portfolio of Micahel Kors, Versace and Jimmy Choo. 

The U.S. was the last jurisdiction that needed to sign off on the transaction.

“If allowed, the deal would eliminate direct head-to-head competition between Tapestry’s and Capri’s brands,” the FTC said in a statement. “It would also give Tapestry a dominant share of the ‘accessible luxury’ handbag market, a term coined by Tapestry to describe quality leather and craftsmanship handbags at an affordable price. 

“The proposed merger threatens to deprive millions of American consumers of the benefits of Tapestry and Capri’s head-to-head competition, which includes competition on price, discounts and promotions, innovation, design, marketing and advertising,” the FTC said. 

Henry Liu, director of the FTC’s Bureau of Competition, added that Tapestry, which was built off of the Coach brand, had become “a serial acquirer” that “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 favorable workplace conditions,” he said. 

The FTC’s statement added: “This deal isn’t likely to be Tapestry’s last, as the acquisition of Capri will give Tapestry additional leverage to make even more acquisitions in the future, according to the complaint. As the FTC’s complaint states, documents produced by Tapestry indicate that it has no plans to stop acquisitions even after this proposed merger.”

The commission voted 5-0 to issue the complaint and to seek a preliminary injunction to stop the deal. 

While Capri’s business has weakened significantly since the two sides reached the agreement, Tapestry showed no signs of backing off and issued a strongly worded statement in response. 

“There is no question that this is a pro-competitive, pro-consumer deal and that the FTC fundamentally misunderstands both the marketplace and the way in which consumers shop,” said Tapestry, which is led by chief executive officer Joanne Crevoiserat. “Tapestry and Capri operate in an intensely competitive and highly fragmented industry alongside hundreds of rival brands, including both established players and new entrants.

“They also compete for consumers who are cross-shopping a wide range of channels and brands along a vast pricing spectrum when considering what to purchase,” the company said. “The reality is that consumers have a host of choices when shopping for luxury handbags and accessories, footwear and apparel, and they are exercising them. 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 $200 billion global luxury industry.”