Warning for all serial acquirers: Handbag deal challenge ahead

In a surprising turn of events, the US Federal Trade Commission has filed a lawsuit to block Tapestry’s $8.5 billion acquisition of rival Capri Holdings, known for their popular handbag brands. The move has left many wondering if Lina Khan, the Chair of the FTC, will be left holding the bag.

Tapestry, the parent company of Coach and Kate Spade, and Capri, the owner of Michael Kors, announced the deal last summer to much fanfare. However, concerns have arisen about the potential impact of the merger on the “accessible luxury” market. Shares of Capri have plummeted from $54 to $37 since the announcement, reflecting investor uncertainty.

Khan and her counterpart at the Department of Justice, Jonathan Kanter, are challenging the transaction based on novel theories of harm in M&A deals. The revised “merger guidelines” now consider effects on innovation, workers, and the broader economy, in addition to consumer prices.

The FTC argues that the merger would stifle competition in the accessible luxury market, where Coach, Kate Spade, and Michael Kors cater to aspirational consumers. The agency also raises concerns about potential job losses in the handbag retail sector.

Tapestry and Capri are expected to defend the deal, claiming that competition in the luxury market is robust and that the merger would not harm consumers. The outcome of this case could have far-reaching implications for the M&A landscape, particularly for companies looking to consolidate and extract synergies.

As the fashion industry watches closely, the dispute between Tapestry and Capri is shaping up to be a bellwether for future mergers and acquisitions in the luxury sector. Stay tuned for updates on this developing story.