FTC Sues to Block $8.5 Billion Deal Between Makers of Coach and Michael Kors

The Federal Trade Commission on Monday sued to block the merger of two premium handbag makers, saying the merger would give the combined firm too much power in the market for accessible luxury satchels.

In blocking Tapestry’s $8.5 billion acquisition of rival Capri Holdings, the FTC is also taking aim at their combined power as an employer. It said the deal could negatively affect employees’ wages and workplace benefits. Post acquisition, the combined company would employ roughly 33,000 employees worldwide, the agency said.

Tapestry and Capri said in a statement that they intend to defend the case in court to complete the deal.

The agency has been taking a more aggressive stance on antitrust enforcement. It recently sued to block Kroger’s $25 billion acquisition of Albertsons, a bid to upend the nation’s biggest supermarket deal. And it sued Amazon, alleging the online retailer uses anticompetitive practices to maintain its power.

Tapestry, the owner of Coach, struck a deal in August to buy Capri, which owns Michael Kors. A combination would put multiple brands, including Kate Spade, Stuart Weitzman, Jimmy Choo and Versace under one roof and create a rival to European luxury-goods conglomerates.

The combined company would have more than $12 billion in annual sales and serve a range of shoppers, from budget-conscious, aspirational luxury customers to the upper echelons of British and Italian fashion.

Yet, it would still be dwarfed by European rivals and lack the high-wattage labels and diversity that have fueled LVMH’s success. The French luxury-goods giant has annual sales of roughly $90 billion and owns dozens of brands—from Dior to Dom Pérignon—across fashion, leather goods, jewelry, and wine and spirits.

Antitrust regulators in Europe and Japan signed off on the deal earlier this month. Tapestry has said it expects to close the deal by the end of 2024.

“The FTC is misunderstanding the market and how consumers shop,” said Tapestry Chief Executive Joanne Crevoiserat in an interview. “We play in a market that is intensely competitive, highly fragmented with hundreds of brands and a constant influx of new entrants.”

Crevoiserat said she doesn’t believe it will be necessary to divest a brand or make any changes to get the deal done.

As for employees, Crevoiserat said Tapestry has a long record of providing industry-leading wages and benefits and will continue to do so as a merged entity.

The deal’s future hinges on the definition of the market that Tapestry and Capri serve. Coach and Michael Kors together had a 17% share of the North American handbag market in 2022, according to a report from Bernstein, citing Euromonitor data. Their share rose to 26% of the luxury bag market and rose even further—to 53%—for so-called affordable luxury bags, which can be priced at hundreds of dollars apiece.

The FTC favored a narrow definition of the market, saying that Tapestry and Capri mainly face off in the “accessible luxury” handbag space.

Citi analyst Paul Lejuez said in a research note that there is little merit for blocking the deal on anticompetitive grounds. “Handbags are among the most discretionary of purchases, and while Coach and Kors hold a large market share (especially if the market is narrowly defined), there is significant competition,” he wrote.

The high level of competition in the luxury industry is one reason why the FTC rarely challenges such mergers, said Barry Nigro, chairman of the antitrust department at the law firm Fried Frank. One rare exception was a move by the Justice Department more than three decades ago to block Gillette’s acquisition of a luxury fountain pen maker. The agency lost the case and the deal closed in 1993.

“It’s relatively easy for existing competitors to reposition their brands,” Nigro said. “As a result, these are hard cases to win.”

Nigro said much will depend on documents the agency collected during its investigation and that shows how closely the two companies compete.

The FTC in its statement said Coach, Kate Spade and Michael Kors continuously monitor each other’s handbag brands to determine pricing and performance, and they each use that information to make strategic decisions, including whether to raise or lower handbag prices. The agency said tens of millions of Americans who purchase Coach, Kate Spade, and Michael Kors products could face higher prices.

Tapestry has enjoyed success by turning around Coach—in part by limiting discounts and making the products more exclusive, which has led to higher prices. It hopes to apply a similar strategy to Capri’s Michael Kors, which has struggled in recent years.

Crevoiserat said Coach didn’t simply raise prices, it also improved the products, which justified the higher price tags.

Investors are behaving as if they are skeptical about the deal’s prospects. Tapestry’s shares are up 9.5% this year through Monday’s close. Capri’s shares have fallen 24% to $37.96, well below the $57-a-share price Tapestry agreed to pay last year.

Write to Suzanne Kapner at [email protected]