Capri Holdings saw its shares drop nearly 46% on Friday after a U.S. judge blocked its $8.5 billion merger with Tapestry, the parent company of Coach. This merger was intended to create a U.S. luxury powerhouse that could better compete with larger European brands by combining well-known names like Coach, Kate Spade, Stuart Weitzman, Versace, Jimmy Choo, and Michael Kors under one umbrella.
With Capri’s stock trading at $22.46, it fell significantly below Tapestry’s offer of $57 per share, resulting in a loss of about $2.2 billion in market value. Capri has faced execution challenges across its diverse brand portfolio, contributing to market share losses at a time when luxury demand is slowing as consumers prioritize essential purchases.
The Federal Trade Commission (FTC) had filed a lawsuit to block the merger, claiming it would eliminate competition between the two leading U.S. handbag makers. After the judge’s decision, analysts indicated that Capri might need to look for another buyer since the appeal process could delay the merger further. Tapestry’s stock, on the other hand, rose nearly 15%.
During an eight-day trial in September, the FTC argued that the merger would create a large company with the power to raise prices unfairly. U.S. District Judge Jennifer Rochon dismissed the companies’ defense, which claimed that handbags are non-essential items and consumers could avoid high prices by not buying them.
Investors were surprised by the ruling, which seemed to contradict the idea that the merger would help Capri compete on a global scale, rather than just in the U.S. market. Tapestry plans to appeal the decision, believing it was incorrect, and may seek an expedited appeal to the Second Circuit Court.
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