Blocked deal between coach and Michael Kors owners

A federal judge blocked Hangings acquisition of Capri Thursday after a brief trial last month in New York.

In her order, Judge Jennifer Rochon granted the Federal Trade Commission’s motion for a preliminary injunction to block the proposed merger, which would unite the two largest luxury houses in the United States and put six fashion brands under one company. : Tapestry’s Coach, Kate Spade and Stuart Weitzman with Capri’s. Versace, Jimmy Choo and Michael Kors.

Tapestry shares rose 10% after the order was filed, while Capri’s shares plunged about 50%.

In a statement, Tapestry said it plans to appeal the order, “consistent with our obligations under the merger agreement.”

“Today’s decision granting the FTC’s request for a preliminary injunction is disappointing and, we believe, incorrect as a matter of law and fact. Tapestry and Capri operate in an industry that is intensely competitive and dynamic, constantly expanding and highly fragmented between both established players and new entrants,” the company said. “We face competitive pressures from both lower and higher priced products and continue to believe this transaction is pro-competitive and pro-consumer.”

Under the terms of the merger agreement, Tapestry agreed to reimburse Capri for expenses incurred in connection with the transaction if it is not approved, according to a securities filing. If Tapestry or Capri abandons the deal because it did not receive regulatory approval or because a government issued a permanent, non-appealable injunction against it, Tapestry agreed to pay Capri between $30 million and $50 million, according to the document.

Capri, on the other hand, agreed to pay a breakup fee of $240 million if it decides to end the proposed merger.

Rochon’s reasoning behind the order was not immediately clear. A detailed opinion was filed under seal and is currently not accessible to the public.

The former rivals and longtime competitors announced the $8.5 billion deal more than a year ago, but the Federal Trade Commission sued to block it in April and sought a preliminary injunction to stop the deal.

The FTC argued that if the companies were to merge, it would harm consumers by making the market for affordable bags less accessible and leave employees with worse wages and benefits. Tapestry argued that consumers would be better off if it merged with Capri because it would allow them to keep up with trends faster, offer better products and reach more customers.

“Today’s decision is a victory not only for the FTC, but also for consumers across the country seeking access to quality handbags at affordable prices,” Henry Liu, director of the Federal Bureau of Competition, said in a statement. FTC. “These bags are a product that millions of people rely on throughout their daily lives. The decision will ensure that Tapestry and Capri continue to compete head-to-head for the benefit of the American public.”

The decision comes at a time when consumers are more price sensitive than ever after years of high inflation. The Biden administration and Democratic presidential candidate Vice President Kamala Harris have pushed for the federal government to use its power to maintain competition and help keep prices low. Republican candidate Donald Trump has also criticized inflation and pushed for tariffs to address the problem.

The FTC, chaired by Lina Khan, has taken steps to block mergers and acquisitions in the food, technology and apparel sectors.

During last month’s trial, key witnesses called by the FTC cited research showing the merger could raise prices for handbags, accessories and apparel, and could give the combined company little incentive to invest in product quality. .

Lawyers for Tapestry and Capri argued that the companies are not each other’s main competitors. They said shoppers now have more options than ever in the handbag market and that trends can change in the blink of an eye in the age of TikTok.

— CNBC’s Melissa Repko contributed to this report.