The U.S. Federal Trade Commission (FTC) has launched a lawsuit to halt the $8.5 billion acquisition of Capri Holdings Ltd. (NYSE: CPRI) by Tapestry Inc. (NYSE: TPR).
What Happened: The FTC's lawsuit, filed on Monday, contends that the proposed merger would eliminate direct competition between the two luxury handbag manufacturers, potentially impacting wages and employee benefits, Reuters reported.
The commission asserts that the deal could deprive consumers of the benefits of competition between Tapestry and Capri, including aspects such as price, discounts, promotions, innovation, design, marketing, and advertising.
This unusual antitrust challenge against a high-end fashion merger could potentially set a new standard for luxury deal regulation, according to several antitrust lawyers.
In defense, Tapestry CEO Joanne Crevoiserat argued that the FTC fundamentally misunderstands the marketplace and the impact of the deal on employees and industry workers.
Despite the FTC's opposition, the companies received regulatory clearance from the European Union and Japan earlier in April. While investors remain skeptical, most analysts expect the deal to close before the Aug. 10 deadline.
Why It Matters: The proposed acquisition was first announced by Tapestry in August, with plans to acquire Capri for $57.00 per share in cash, implying a premium of approximately 59% to the 30-day volume weighted average price ending Aug. 9, 2023. The merger would combine iconic brands such as Coach, Kate Spade, and Stuart Weitzman from Tapestry with Versace, Jimmy Choo, and Michael Kors from Capri.
However, traders expressed doubt about the deal's antitrust approval, despite Tapestry's confidence. The merger of these two major players in luxury accessories would rank them fourth globally and second in the Americas, attracting regulatory attention.
Price Action: On Monday, Capri Holdings Limited Ordinary Shares closed at $37.96, with a 52-week high of $54.52 and a 52-week low of $34.17. Tapestry closed at $40.31, with a 52-week high of $48.8 and a 52-week low of $25.99.