"Handbag Prices to Rise" US FTC Files Lawsuit Opposing Coach-Michael Kors Merger

U.S. competition authorities have stepped in to block an $8.5 billion (approximately 11.7 trillion KRW) acquisition deal pursued by Tapestry, the parent company of fashion brand Coach, citing concerns that the merger with competitor Capri Holdings could harm market competition. Capri Holdings owns brands such as Versace and Michael Kors.

[Image source=AP Yonhap News]

According to The Wall Street Journal (WSJ), the U.S. Federal Trade Commission (FTC) filed a lawsuit on the 22nd (local time) to block Tapestry's acquisition of Capri Holdings.

The FTC expressed concerns that the acquisition would allow Tapestry to "secure a dominant position in the accessible (relatively affordable) luxury handbag market," potentially reducing market competition. It added, "Consumers would lose the benefits of competition that allow them to purchase affordable handbags," and "workers could also be negatively impacted in terms of wage increases and workplace benefits." The combined workforce of the two companies would total approximately 33,000 employees worldwide.

Earlier, in August last year, Tapestry announced it had signed a contract to acquire Capri Holdings' shares at $57 per share in cash. This was expected to create a leading U.S. fashion giant encompassing Tapestry's brands Coach, Kate Spade, and Stuart Weitzman, along with Capri Holdings' brands Versace, Jimmy Choo, and Michael Kors.

Subsequently, the acquisition received merger approval from competition authorities in the European Union (EU) and Japan, and Tapestry planned to complete the acquisition process by the end of this year. However, the FTC's intervention has increased uncertainty around the deal. WSJ reported that the FTC is taking a more aggressive stance on antitrust enforcement, citing lawsuits to block Kroger's acquisition of Albertsons and a lawsuit against Amazon.

The company immediately pushed back. Tapestry CEO Joanne Crevoiserat stated, "The FTC fundamentally misunderstands the market and how consumers shop," adding, "We operate in a highly competitive market segmented into hundreds of brands with constant new entrants." She also said there are no plans to divest any brands to complete the acquisition and that the merged company will continue to offer industry-leading wages and benefits.

WSJ noted that the outcome of this deal hinges on market definition. Citing a Bernstein report based on Euromonitor data, it estimated that as of 2022, Coach and Michael Kors hold a combined 17% share of the North American handbag market. Their share rises to 53% in the so-called "affordable luxury bags" segment, where individual bags are priced in the several hundred dollar range. This narrow segment is precisely the area the FTC highlighted as potentially reducing competition.

The FTC stated that competing brands such as Coach, Kate Spade, and Michael Kors continuously monitor each other's pricing and make strategic decisions based on this information. It argued that the merger could lead to price increases affecting tens of millions of American consumers who purchase these brands.

However, Paul Lejuez, an analyst at Citi, assessed in an investor memo that the FTC's anticompetitive concerns do not make the deal unviable. He said, "Handbags are among the most carefully purchased items," and although Coach and Michael Kors have high market shares, "there is significant competition." Barry Nigro, head of the antitrust department at law firm Fried Frank, described the lawsuit as "a case that is difficult to win."

WSJ reported that investors are skeptical about the prospects of the deal. While Tapestry's stock price closed up 9.5% year-to-date, Capri Holdings' shares plunged 24%. Capri Holdings' stock price stands at $37.96, well below the $57 per share agreed upon in the acquisition contract last year.