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FTC scores major antitrust victory as US Federal Judge blocks $8.5 billion Tapestry-Capri merger, citing potential impact on affordable luxury market shaking up handbag competition nationwide

In a major win for the Federal Trade Commission, a US judge on October 24 halted the $8.5 billion acquisition of its rival Capri Holdings by Tapestry. This decision ahead of the US Presidential elections whilst seriously dimming the company's merger plans. The decision was made after an eight-day New York trial in which US District Judge Jennifer Rochon ruled with the FTC. She decided that the consolidation likely would harm consumers because it would result in far too much power remaining in the handbag market in the United States, reduce competition, and allow the companies' prices to increase.

The FTC argued that bringing together Tapestry's Coach, Kate Spade, and Stuart Weitzman with Capri's Versace, Jimmy Choo, and Michael Kors would stifle the intense competition required to keep prices fair. Tapestry and Capri had argued in a key defence that handbags are nonessential products. It was something the companies suggested people could simply choose not to buy if they found the prices too high, added Judge Rochon. But Rochon says this view “neglects the fact that handbags are meaningful to many women, not just to assert personal identity through fashion, but also to support their daily needs.”

Blocking this deal comes at a time when inflation and consumer costs remain the top of mind for voters ahead of the November presidential election, a situation that has added pressure to the economic record of the Biden administration. Delivering this ruling would give the administration a win in its consumer-focused antitrust efforts.

Capri's stock fell 47 per cent after the decision, whereas Tapestry's share price rose about 13 per cent in after-market trading. The ruling killed the deal effectively because it would require a new FTC review stretching past the February 10 termination date, lawyers for Tapestry confirmed in court documents. The judge kept the door open for the companies to appeal, but Tapestry immediately said it believed the decision was wrong. “We are facing competitive pressures both at lower and higher price points, and we continue to believe that this transaction is pro-competitive and pro-consumer,” Tapestry said.

FTC Bureau of Competition director Henry Liu said the ruling was “a victory not only for the FTC but also for consumers across the country seeking access to quality handbags at affordable prices.”.

Although it won regulatory approvals in Japan and the European Union earlier this year, it was refused by the U.S. regulators to support the consolidation. Tapestry and Capri also tried to argue that merging would revitalize its brands at Capri and boost competition, but Judge Rochon dismissed the rationale. He said that Capri can develop newness for their brands without involving Tapestry in it. She noted, though, that any such possible competitive harm outweighed such benefits, at least on Capri's categorization of her brands as “accessible” or “affordable luxury,” which is quite far from any proper use of the term luxury brand.

The FTC has made it clear that it remains committed to enforcing competition in consumer markets, even as Tapestry seeks other remedies.