FTC Prepares to Sue to Block Tapestry’s $8.5 Billion Takeover of Capri Holdings

The Federal Trade Commission (FTC) is gearing up to take legal action against the proposed $8.5 billion merger between Tapestry, the parent company of Coach, and Capri Holdings, owner of luxury brands like Michael Kors and Versace. This potential merger, announced in August 2023, aims to create a formidable U.S. luxury conglomerate to rival European giants like LVMH and Kering.

Regulators are set to convene to deliberate on the matter, with a decision on whether to file a lawsuit looming. The FTC's scrutiny of the deal contrasts with its approval by regulators in the European Union and Japan, indicating differing perspectives on its potential impact.

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The FTC's concerns revolve around potential antitrust implications. By consolidating iconic brands like Michael Kors and Coach under one roof, there are fears that competition could be stifled, leading to higher prices for consumers. Critics argue that reducing the need for these brands to compete on price could result in a less competitive market landscape.

Investors have reacted cautiously to the proposed merger, with shares of Capri falling more than 20 percent in 2024, while Tapestry's shares experienced modest gains. This skepticism reflects uncertainty regarding the deal's eventual outcome and its potential repercussions on the luxury fashion market.

While monopoly cases in the fashion industry are rare due to ample competition from emerging labels, the FTC sees this merger as a unique case warranting intervention. Political scrutiny may also come into play, as regulators seek to establish precedent for future antitrust cases.

However, some industry experts question the necessity of FTC intervention in this particular case. William Kovacic, a former FTC chair, suggests that the Tapestry-Capri deal may not be the ideal battleground for protecting consumer interests.

Despite previous reports indicating the FTC's inclination towards legal action, the final decision remains pending. Both Tapestry and Capri could argue in favor of the merger by pointing to the rise of upstart brands, which have gained popularity with the support of celebrities like Taylor Swift.

As the FTC prepares to take action, the outcome of this legal battle will have far-reaching implications for the luxury fashion industry. Whether the merger proceeds or faces regulatory hurdles, the Tapestry-Capri deal serves as a testament to the evolving dynamics of competition within the global luxury market.