Tapestry and Capri: FTC Block Puts Deal in Doubt but We Think It Will Happen; Both Shares Attractive

The US Federal Trade Commission is challenging narrow-moat Tapestry’s acquisition of no-moat Capri on antitrust concerns. In its complaint, the FTC cites the direct competition between Coach, Kate Spade, and Michael Kors in handbags. We had anticipated that this aspect of the merger would be a problem as these brands are among the largest in the affordable part of the luxury handbag market. In addition, the FTC has concerns regarding employment losses and lower wages in the apparel and accessories space and Tapestry’s possible pursuit of further acquisitions. In response, both Tapestry and Capri issued statements to dispute the FTC’s claims and affirm their intention to close the deal. Unfortunately, the FTC’s position seemingly leaves little room for negotiation, which likely means a long delay until a trial.