US Govt to Block Tapestry's $8.5 Billion Takeover of Capri Holdings

In an unprecedented move, the US Federal Trade Commission (FTC) has filed a lawsuit to prevent the $8.5 billion acquisition of Capri Holdings by Tapestry, the parent company of Coach, Kate Spade, and Stuart Weitzman. This marks the first instance under the Biden administration's strict antitrust enforcement in the fashion accessories sector.

According to Reuters, the FTC argues that the merger between Tapestry and Capri Holdings, which owns luxury brands Michael Kors, Versace, and Jimmy Choo, would result in higher prices for consumers in the affordable luxury market, thus harming competition.

Market Impact

The Straits Times noted that a successful merger would position the combined entity as the US's second-largest personal luxury goods company, trailing only behind LVMH. With nearly 10% of the US market share in personal luxury goods, the conglomerate's reach would extend across handbags, clothing, footwear, and jewelry. However, FTC's Bureau of Competition director, Mr. Henry Liu, emphasizes that Tapestry's acquisition is a strategic move to cement its dominance in the fashion industry, potentially stifling competition and innovation.

Industry Responses

Despite the FTC's concerns, Tapestry CEO Joanne Crevoiserat contends that the fashion sector is highly competitive, with consumers having a broad spectrum of choices across various brands and price points. She refutes claims that the merger would adversely affect workers or competition, highlighting Tapestry's commitment to offering industry-leading wages and benefits.

Capri Holdings echoes this sentiment, stating that the government's stance overlooks market dynamics supporting a healthy competition level. Both companies have vowed to defend their case vigorously and proceed with the acquisition.

Wider Implications

This legal challenge is a significant test of President Joe Biden's aggressive approach to antitrust enforcement in previously unchallenged sectors like fashion. With FTC chair Lina Khan and Justice Department antitrust chief Jonathan Kanter at the helm, the administration has initiated numerous merger challenges.

However, their track record in court has been mixed. The outcome of this case could set a new precedent for antitrust scrutiny in the fashion industry and beyond.

Future Uncertain

The litigation puts on hold Tapestry's ambitious plans to leverage its successful strategy with Coach to rejuvenate Michael Kors and thereby enhance the newly formed conglomerate's profitability and market position. With sales at Capri declining and Tapestry experiencing modest growth, both entities have high stakes.

The industry awaits a judicial decision that could reshape the landscape of luxury fashion in the United States.

Photo: Tamara Bellis/Unsplash