AUS
NZ
UK
CA
USA
IND
Highlights
Capri Holdings Ltd. saw its shares decline nearly 46% in premarket trading following a U.S. judge's ruling to block its $8.5 billion merger with Tapestry.
The Federal Trade Commission (FTC) argued that the merger would significantly reduce competition in the U.S. handbag market.
Tapestry plans to appeal the ruling, asserting that the decision was incorrect.
Shares of Capri Holdings Ltd.,(NYSE:CPRI) the parent company of Michael Kors, experienced a sharp decline of nearly 46% in premarket trading on Friday. This drop followed a ruling by a U.S. judge blocking the proposed $8.5 billion merger with handbag maker Tapestry (NYSE). The merger was intended to create a formidable U.S. luxury brand conglomerate, consolidating well-known labels such as Coach, Kate Spade, Versace, Jimmy Choo, and Michael Kors under one umbrella.
The Federal Trade Commission (FTC) had previously filed a lawsuit in April to prevent the merger, arguing that it would eliminate crucial head-to-head competition between the two leading handbag manufacturers in the United States. During an eight-day trial in September, the FTC contended that the merger would enable the newly formed entity to raise prices unfairly, thereby harming consumers. U.S. District Judge Jennifer Rochon ultimately rejected the companies' defense, which included the assertion that handbags are non-essential items and that consumer choice could mitigate price increases.
In response to the ruling, Tapestry's shares rose nearly 13%. Analysts indicated that while the merger was seen as a means to revive Capri's brand portfolio, it also presented risks to Tapestry. Should the merger fail, experts suggest that Capri may seek alternative suitors, particularly as the company faces operational challenges at Michael Kors.
Tapestry has announced plans to appeal the ruling, expressing confidence in the merits of their case. Mike Keeley, a partner and chair of the antitrust group at Axinn, Veltrop & Harkrider LLP, noted that the companies may pursue an expedited appeal to the Second Circuit, indicating a belief that they could succeed in overturning the decision.
The ongoing developments will be closely monitored by market participants as both companies navigate this significant regulatory hurdle.
