FTC moves to block Tapestry's acquisition of Capri, saying it would crimp competition for affordable handbags

By Bill Peters

Deal is latest to be targeted by regulators, as higher prices hit consumers

The Federal Trade Commission on Monday sued to block Tapestry Inc.'s $8.5 billion purchase of Capri Holdings - a deal that would combine the Coach, Kate Spade and Michael Kors brands - saying the move would stifle competition in the so-called "accessible luxury" handbag market.

The agency said it had issued an administrative complaint and authorized a lawsuit in federal court to block the deal, claiming the deal would push prices higher and offer less motivation for either company to compete for workers, potentially leaving them with weaker pay and benefits.

"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," Henry Liu, director of the FTC's Bureau of Competition, said in a statement.

Both Tapestry (TPR) and Capri (CPRI) objected to the FTC's move. Shares of Capri rose 0.8% after hours, while Tapestry gained 0.3%. The New York Times reported last week that the agency was preparing to block the deal.

The deal, which the companies announced in August and expect to close this year, is the latest to be targeted by regulators, as higher prices remain a central issue for customers and President Joe Biden's administration in an election year.

The FTC in February sued to block the merger between grocery chains Kroger Co. (KR) and Albertsons Cos Inc. (ACI). The Justice Department last year sued to halt JetBlue Airways Corp.'s (JBLU) purchase of Spirit Airlines Inc. (SAVE); the two airlines abandoned that deal in March.

Tapestry's acquisition of Capri would be one of the fashion industry's biggest in recent years. And it would come as higher prices, particularly for less luxurious things like food and rent, weigh on demand for clothing, apparel and accessories.

The FTC on Monday said that Tapestry and Capri, combined, would employ around 33,000 people. It said that Tapestry, for years, had tried to acquire its way into becoming a fashion conglomerate - a pattern it said would make it more difficult for smaller brands to compete.

"Tapestry and Capri currently compete on everything from clothing to eyewear to shoes," the FTC said in a statement. "Where Tapestry and Capri most vigorously compete against one another - mainly between Tapestry's Coach and Kate Spade brands against Capri's Michael Kors brand - is in the 'accessible luxury' handbag market."

That statement added: "Today, Coach, Kate Spade and Michael Kors continuously monitor each other's handbag brands to determine pricing and performance, and they each use that information to make strategic decisions, including whether to raise or lower handbag prices."

Tapestry, in a statement, said that the deal would benefit consumers, and accused the FTC of misunderstanding what it said was intense competition in the fashion industry.

The company said that it competed against hundreds of rivals new and old, and expressed confidence in its ability to defend the transaction in court.

"The bottom line is that Tapestry and Capri face competitive pressures from both lower- and higher-priced products," Tapestry said. "In bringing this case, the FTC has chosen to ignore the reality of today's dynamic and expanding $200 billion global luxury industry."

Capri, in its own statement, echoed that sentiment.

"Consumers have hundreds of handbag choices at every price point across all channels, and barriers to entry are low," that statement said.

"Capri intends to vigorously defend this case in court alongside Tapestry and complete the pending acquisition," it continued. "The U.S. FTC is the only regulator that did not approve this transaction, which received required approvals from all other jurisdictions."

-Bill Peters

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04-22-24 2039ET

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