Capri stock fell 45% after judge blocked $8.5 billion Tapestry deal
Shares of Capri Holdings ( CPRI ), the parent company of Michael Kors and Jimmy Choo, fell nearly 45% in premarket trading Friday after a U.S. judge blocked its pending $8.5 billion merger with Coach owner Malik Tapestry ( TPR ).
In a court filing obtained by Yahoo Finance, US District Judge Jennifer Rochon ruled that “antitrust has come to fashion,” arguing a merger between the two fashion powerhouses would “significantly reduce competition in the affordable-luxury handbag market.”
Tapestry and Capri announced their proposed merger last year. The combination will bring together six high-profile fashion brands under one roof: Tapestry's Coach, Stuart Weitzman and Capri's Versace, Kate Spade with Jimmy Choo and Michael Kors.
Shares of Tapestry moved in the opposite direction of Capri, rising nearly 12% after the late-Thursday news.
In a statement released Thursday evening, Tapestry said it plans to appeal the decision, adding, “Tapestry and Capri operate in an industry that is fiercely competitive and dynamic, constantly expanding and highly fragmented between established players and new entrants.”
“We face competitive pressures from both low- and high-value products and believe this transaction is competitive and pro-consumer.”
The Federal Trade Commission moved to block the acquisition in April, seeking a preliminary injunction to block the deal. Rochan granted the ban on Thursday.
At the time, the company argued that the merger would “[threaten] to deprive consumers of competition for affordable handbags, while hourly workers may lose the benefits of higher wages and more favorable working conditions.”
Tapestry fought those claims, arguing that the merger was necessary to compete against dominant European players like Gucci.
The ruling blocks the merger while the FTC proceeds with its proceedings, but all parties will still have the opportunity to argue their case before the FTC.
Before Thursday's ruling, Pauline Brown, the former North American chair of LVMH, which owns fashion brands such as Louis Vuitton and Dior, told Yahoo Finance that the FTC would face a “high hurdle” in making its case.
“The most complex part of their legal argument is that there is a natural market … for what they call affordable luxury handbags,” he said at the time. “The reality is, I think it's a spectrum.”
He added that it's “a weak argument” to say that consumers will be hurt by higher prices because “customers, if they're happy, will come to the right price for the right design. And if they're not, they'll go to another player.”
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