By Investing.com — The $8.5 billion merger deal between US luxury groups Tapestry (NYSE:TPR) and Capri has been blocked by a US judge, in a win for federal regulators who have sued to keep the tie-up from moving forward earlier this year.
Following an eight-day trial in New York, Judge Jennifer Rochon ruled in favor of the Federal Trade Commission’s call to pause the deal so it can run its own official proceedings. Had it been approved, the merger would have brought together a range of brands under one roof, including Tapestry’s Kate Spade and Stuart Weitzman and Capri’s Jimmy Choo and Michael Kors.
The FTC has argued that the merger likely will “substantially lessen competition” in the market for accessible-luxury handbags and allow the combined entity to raise prices for consumers.
Challenges to mergers in the fashion industry are relatively rare because of fragmentation and competition within the sector. Regulators in the European Union and Japan previously approved the deal earlier this year.
Tapestry, for its part, has rebuffed the FTC’s claims, saying the merger was necessary to create address growing competition in the US handbags market and counterbalance European firms like Gucci. In court documents, Tapestry’s lawyers claimed the ruling effectively permanently blocks the deal.
The decision “underscores the huge regulatory pressures facing Corporate America when it comes to [mergers and acquisitions] with the aggressive antitrust policies at the current FTC/[Department of Justice],” analysts at Vital Knowledge said.
In a note to clients, analysts at Citi said that while they believe Tapestry could have run the Capri brands “better and extracted more synergies,” the court’s ruling actually “simplifies the Tapestry story, making it much cleaner.”
“[Tapestry management] may be breathing a secret sigh of relief. It allows [Tapestry]’s strong free cash flow generating power to come back into focus, and we expect the company to resume share repurchases in [fiscal year 2025],” the Citi analysts wrote.
Shares in Versace-owner Capri shed a little under half of their value in premarket US trading on Friday, while Coach-parent Tapestry rose 12%.
(Yasin Ebrahim and Reuters contributed reporting.)