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<p>A federal judge on Thursday temporarily blocked luxury fashion conglomerate Tapestry from moving forward with its $8.5 billion merger of Capri Holdings, siding with antitrust regulators in arguing that the tie-up would lead to higher prices for consumers.</p> <p>The case will continue in the Federal Trade Commission’s in-house administrative court. Tapestry plans to appeal the decision, a company spokesperson said.</p> <p>In her 169-page decision, Judge Jennifer Rochon of the Southern District of New York sided with the FTC, writing that the proposed merger “likely will substantially lessen competition in the market for accessible-luxury handbags, in violation of Section 7 of the Clayton Act.”</p> <p>The spokesperson for Tapestry said the judge’s decision was “disappointing” and “incorrect on the law and facts.”</p> <p>“Tapestry and Capri operate in an industry that is intensely competitive and dynamic, constantly expanding, and highly fragmented among both established players and new entrants,” the spokesperson said. “We face competitive pressures from both lower- and higher-priced products and continue to believe this transaction is pro-competitive and pro-consumer.”</p> <p>Capri’s share price dropped more than 51 percent in post-trading. Tapestry’s share price jumped more than 12 percent.</p> <p>Henry Liu, director of the FTC’s bureau of competition, called the decision a “victory” for the antitrust regulators and consumers.</p> <p>“These bags are a product which millions of people rely on throughout their daily lives,” he said in a statement to The Washington Post. “The decision will ensure that Tapestry and Capri continue to engage in head-to-head competition to the benefit of the American public.”</p> <p>Capri and Tapestry had argued the merged company would ensure the brands, to be run with “separate identifies and structures,” would still compete with each other on price. But Rochon argued this promise was “unenforceable” and the brands would “compete less with one another than they would under separate ownership.” And the FTC sufficiently proved that the merger would provide the combined company with a 59 percent share of the market, she noted.</p> <p>The ruling is a major hit for the companies, which announced the merger in 2023. The union would combine such Tapestry labels as Coach, Kate Spade and Stuart Weitzman with Capri’s Versace, Jimmy Choo and Michael Kors. That tie-up would make them more competitive with their European rivals - namely LVMH, the powerhouse behind Louis Vuitton, Dior, Fendi and Givenchy, as well as Kering, the owner of Gucci, Balenciaga and Saint Laurent - and usher them into a higher-end segment of the fashion industry.</p> <p>The FTC filed a lawsuit to block the merger in April and the trial began in September, when the judge heard seven days of testimony.</p> <p>The luxury market has stalled in recent months and is projected to continue with sluggish sales through the rest of the year, according to a report from HSBC Global Research. In August, Capri reported that revenue dropped 13.2 percent year-over-year. Revenue from Versace alone was down 15.4 percent, while Michael Kors saw a 14.2 percent decline.</p> <p>Tapestry faired a bit better in its most recent quarter, beating Wall Street’s expectations. Revenue inched up 1 percent year-over-year but was largely driven by record growth with Coach, which exceeded $5 billion in sales. Sales for Stuart Weitzman dropped 19.2 percent year-over-year.</p> <p>The judge’s decision leaves Capri “very exposed,” Neil Saunders, managing director of GlobalData, wrote in an email. “The company is in poor shape and, in betting on being acquired, has neglected the hard work that needs to be done to course-correct many of its weak brands.”</p> <p>Capri’s best alternative is to find a new buyer, but it’s unlikely to get as good of a deal as the one with Tapestry, he said.</p> <p>The judge’s ruling is a win for the FTC, which under the Biden administration has cracked down on megamergers on antitrust grounds, including in the retail industry. In February, federal regulators filed suit to block the merger of supermarket giants Kroger and Albertsons, which regulators said would eliminate competition and threaten consumers’ access to affordable groceries. A federal judge in Portland could release her verdict in the coming days or weeks. The FTC also went after the fusion of mattress maker Tempur Sealy and retail chain Mattress Firm.</p>