Capri Holdings shares plunge 50% as judge halts $8.5bn merger with Tapestry

In a significant setback for Capri Holdings, the company’s stock nosedived by 50% after a U.S. federal judge blocked its $8.5 billion merger with Tapestry. The decision has triggered widespread concerns among investors and market watchers, questioning the future trajectory of both luxury fashion giants. The Federal Trade Commission (FTC) had previously argued that the merger would stifle competition in the “accessible luxury” handbag sector, pointing out that Capri’s Michael Kors brand directly rivals Tapestry’s Coach and Kate Spade.

The FTC’s primary contention was that this merger would consolidate too much market power within the luxury accessories space, potentially leading to higher consumer prices and reduced product diversity. The agency emphasized that the brands monitor and react to each other’s strategies closely, suggesting that merging the two could significantly reduce competitive dynamics.

Capri Holdings, which owns iconic brands like Versace and Jimmy Choo, had aimed to create a powerhouse entity with Tapestry to combat declining market shares and rising competition from European luxury houses. The merger had already received approval from Japanese and European Union regulators, but the U.S. verdict represents a major hurdle.

FTC blocks Tapestry and Capri merger over market concerns

Despite the setback, Capri’s legal team argued that the merger was necessary for its survival and growth. Capri’s representatives stated that the Michael Kors brand has struggled since 2016, losing relevance and significant retail clients such as Nordstrom. They pointed out that the average price of a Michael Kors handbag had dropped below the FTC’s accessible luxury threshold, indicating that the merger was not aimed at monopolistic practices but was essential for reviving the brand’s standing.

Stock price analysis: Capri’s share drop and investor reactions

In response to the court ruling, Capri Holdings’ stock price plunged dramatically, losing half its value within hours of the announcement. Tapestry’s stock also saw a decline, though less severe. Market analysts interpret this drop as a sign of investor anxiety over the future of Capri’s restructuring strategy and the overall luxury sector’s consolidation trends. Some experts suggest that without the merger, Capri could face more difficulties in maintaining its market position against rising competitors like LVMH and Kering.

According to industry experts, the FTC’s aggressive stance highlights the regulatory body’s focus on maintaining competitive landscapes, even within niche sectors like luxury accessories. Analysts noted that the FTC is becoming increasingly vigilant in overseeing mergers and acquisitions, particularly in high-value markets. They argued that while the merger could have streamlined operations and reduced costs, the risk of limiting consumer choices was too great for regulators to ignore.

What’s next for Capri and Tapestry after merger fallout?

Moving forward, Capri Holdings may explore alternative strategies to navigate its financial and market challenges. Analysts believe that Capri might either scale down its expansion plans or pivot to enhancing its current brand portfolio. Tapestry, on the other hand, could look for other partnerships or focus on strengthening its existing brands individually.