FTC Challenges Merger of Handbag Brands

The Freshfields law firm reports that the Federal Trade Commission (FTC) has moved to block an $8.5 billion purchase by Tapestry of Capri Holdings, the parent company of several brands including Michael Kors and Versace Inc. Tapestry is the parent company of Coach and Kate Spade. 

In a statement, The FTC cited its 2023 Merger Guidelines, arguing that the acquisition, “builds on a deliberative, decade-long M&A strategy by Tapestry. . .to achieve its goal to become the major American fashion conglomerate” through serial acquisitions of fashion brands.

The FTC argues that the deal would eliminate competition between Capri’s Coach and Kate Spade brands, and Tapestry’s Michael Kors brand, which would give Tapestry a dominant position in the “accessible luxury” handbag market. It also alleges that the deal would result in reduction of competition between the parties in the purchase of labor.

The 2023 Guidelines specifically cite slow wage growth and worse conditions for workers that occur when a merger combines competing buyers of labor, particularly if the labor markets are highly specialized and have high switching costs. The Federal Trade Commission voiced similar concerns in opposing the Kroger-Albertsons merger, alleging potential harm by weakening union leverage.

Freshfields lists some important takeaways for companies considering a merger:

Anticipate novel theories of harm: There have been several lawsuits in which the FTC demonstrates a willingness to allege novel theories of harm advanced by the Merger Guidelines. Be prepared, particularly if there is substantial head-to-head competition between the parties.

Market definition is key: The FTC has alleged narrow product markets to support findings of anti-competitive harm in recent years.

Documentary evidence can be crucial: The FTC relied on internal documents throughout its complaint against Tapestry. The documentary evidence is redacted in the complaint, but it will be critical if the case goes to trial.