The plan of the American fashion brand Tapestry to acquire Capri for $8.5 billion has been halted by a federal judge, causing Capri's stock price to plummet by over 47%, hitting a four-year low. Analysis indicates that Capri's market share decline is the main reason, while Tapestry's stock price has risen by nearly 15%, reaching a six-year high. The judge believes that the merger would reduce competition in the mid-priced luxury handbag market, raising antitrust concerns in the fashion industry
On the evening of Thursday, October 24th, a regional federal judge in the United States approved the Federal Trade Commission (FTC)'s motion for a preliminary injunction to block American fashion brand Tapestry's $8.5 billion acquisition of its peer Capri, otherwise creating a handbag retail giant.
Although the specific reasons for the ruling were not disclosed, in court documents obtained by the media, the U.S. judge mentioned that "antitrust has entered the fashion industry," and the merger of the two major fashion giants in the U.S. "will significantly reduce competition in the affordable luxury handbag market."
Originally proposed in August last year, the merger would have combined Tapestry's Coach, Kate Spade, and Stuart Weitzman, with Capri's Michael Kors, Versace, and Jimmy Choo, among six fashion brands, into a larger group.
Following the unfavorable ruling, the stock price of American fashion luxury group Capri plummeted over 54% after hours on Thursday, and continued to decline on Friday, dropping over 47% to a four-year low, trading at less than $22, well below Tapestry's acquisition offer of $57 per share, resulting in a market value loss of over $2.2 billion. Meanwhile, Tapestry's stock price surged nearly 15% to its highest level in six years since 2018.
Some analysts believe that Capri's sharp stock decline is due to more severe market share erosion issues for the brand.
Dana Telsey, CEO of Telsey Advisory Group, pointed out that the attractiveness of this acquisition is diminishing as Capri's performance is poor, and the transaction time has been extended due to the FTC's antitrust litigation challenge: "If the deal fails, Capri will have to look for another acquirer."
On the other hand, Tapestry's stock price jumped because although the company has the ability to revitalize Capri, this transaction still brings additional risks to the parent company of Coach. In April this year, the U.S. FTC requested to block the merger, fearing the creation of a huge entity with unfair pricing power.
(Continuously updating)