FTC sues to block US$8.5B deal between Coach and Michael Kors

The U.S. Federal Trade Commission (FTC) has sued to block luxury fashion holding company Tapestry Incorporated’s US$8.5 billion acquisition of Capri Holdings.

The acquisition expects to bring together Tapestry’s Coach, Kate Spade and Stuart Weitzman and Capri’s Versace, Jimmy Choo and Michael Kors. Combined, both companies generated global annual sales of over US$12 billion, according to a statement by Capri Holdings.

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According to the FTC, the proposed merger threatens to deprive millions of American consumers of the benefits of Tapestry and Capri’s head-to-head competition, which includes competition on price, discounts and promotions, innovation, design, marketing, and advertising.

“Today, Coach, Kate Spade and Michael Kors continuously monitor each other’s handbag brands to determine pricing and performance, and they each use that information to make strategic decisions, including whether to raise or lower handbag prices,” said the FTC.

The deal also threatens to eliminate the incentive for the two companies to compete for employees and could negatively affect employees’ wages and workplace benefits.

“With the goal to become a serial acquirer, Tapestry seeks to acquire Capri to further entrench its stronghold in the fashion industry,” said Henry Liu, director of the FTC’s Bureau of Competition.

“This deal threatens to deprive consumers of the competition for affordable handbags, while hourly workers stand to lose the benefits of higher wages and more favourable workplace conditions,” he added.

The commission vote to issue the administrative complaint and authorise staff to seek a temporary restraining order and a preliminary injunction was 5-0.

In response to the FTC’s decision, Capri Holdings intends to defend the acquisition in court alongside Tapestry, citing its confidence in the combination and the value it will bring to all stakeholders.

“Capri Holdings strongly disagrees with the FTC’s decision,” said Capri Holdings in a statement. “The market realities, which the government’s challenge ignores, overwhelmingly demonstrate that this transaction will not limit, reduce, or constrain competition.”

“Tapestry and Capri operate in the fiercely competitive and highly fragmented global luxury industry. Consumers have hundreds of handbag choices at every price point across all channels, and barriers to entry are low,” explained Capri Holdings.

The FTC also filed a complaint to block Microsoft from acquiring video game developer Activision Blizzard and its blockbuster gaming franchises such as Call of Duty, in 2022. The FTC alleged that the US$69 billion deal would enable Microsoft to "suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business". News of the acquisition broke in January this year.

The FTC pointed to Microsoft’s record of acquiring and using gaming content to suppress competition from rival consoles, including its acquisition of ZeniMax, parent company of video game firm Bethesda Softworks. Microsoft decided to make several of Bethesda's titles, including Starfield and Redfall, Microsoft exclusives. This was despite assurances given to European antitrust authorities that it had no incentive to withhold games from rival consoles.

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