A High-Stakes Fashion Showdown: Tapestry vs. FTC in Court business, fashion, fashion news

President Joe Biden’s administration has taken a strong stance against consolidation in various industries, and the fashion world is now facing this scrutiny head-on. In a Manhattan courtroom, Tapestry Inc., the parent company of Coach, Kate Spade, and Stuart Weitzman, is battling the US Federal Trade Commission (FTC) over its proposed $8.5 billion acquisition of Capri Holdings Ltd., owner of Michael Kors, Versace, and Jimmy Choo. This legal battle, scheduled for less than two weeks, marks a crucial test for both sides: a win for the FTC could further embolden its antitrust efforts, while a victory for Tapestry would signal a potential shift in the agency’s approach under Chair Lina Khan.

The FTC argues that this merger would eliminate «direct, head-to-head competition» within the «accessible luxury» handbag market, ultimately leading to higher prices for consumers and reduced job security for employees. They claim that by combining forces, Tapestry and Capri would control over half of this market segment, stifling innovation and consumer choice.

However, Tapestry and Capri maintain that the FTC’s definition of the relevant market is too narrow, failing to account for the numerous competing brands both online and in physical stores. They argue that entry barriers into the handbag market are relatively low and that consumers benefit from a wide range of choices at various price points.

This high-profile case has attracted significant attention from Wall Street merger arbitragers who stand to gain or lose millions depending on the outcome. Currently, these investors believe Tapestry and Capri have a better-than-even chance of securing the deal’s approval. This optimism is reflected in Capri’s stock price, which has steadily climbed towards Tapestry’s $57 per share offer in recent weeks.

The court proceedings will feature testimony from CEOs of both companies, expert witnesses, and individuals with firsthand experience in the handbag industry. Judge Jennifer Rochon, a Biden appointee, will preside over this mini-trial, marking her first antitrust case since assuming the bench in 2022. Her decision could have far-reaching implications for mergers and acquisitions across various industries.

The Tapestry-Capri case comes at a pivotal moment in the Biden administration’s antitrust enforcement strategy. While the FTC has secured victories in some high-profile cases, such as its successful challenge to Illumina Inc.„s acquisition of Grail, it also suffered setbacks, most notably its failed attempt to block Microsoft Corp.„s $69 billion purchase of Activision Blizzard Inc. This mixed record underscores the complexity and uncertainty surrounding antitrust litigation.

Regardless of the outcome, this case will undoubtedly shape the future landscape of the fashion industry. A Tapestry win could encourage further consolidation, while an FTC victory would signal a renewed commitment to preserving competition in this dynamic sector. The stakes are high for both sides, with the future of accessible luxury hanging in the balance.