Federal Trade Commission (FTC), USA: Raising concerns over the elimination competition and alleged violation of the relevant provisions of FTC Act and Clayton Act, due to the proposed $8.5 billion acquisition of Capri Holdings Ltd. by Tapestry Inc., the Commission initiated proceedings by issuing its complaint pursuant to Section 5(b) of the FTC Act, 15 U.S.C. § 45(b), and Section 11(b) of the Clayton Act, 15 U.S.C. § 21(b). The Commission issued an administrative complaint and authorized a lawsuit in federal court to block the proposed acquisition.
Background: Tapestry’s proposed acquisition would combine six iconic brands, including three—Tapestry’s Coach and Kate Spade and Capri’s Michael Kors—that are close competitors.
Commission’s Assessment: The Commissioners, Lina M. Khan, Chair, Rebecca Kelly Slaughter, Alvaro M. Bedoya, Melissa Holyoak and Andrew Ferguson noted that with Tapestry’s acquisition of Michael Kors- the closest competitor of Coach and Kate Spade, consumers will lose the benefit of head-to-head competition on price, discounts and promotions, innovation, design, marketing, and employee wages and workplace benefits.
Both companies compete on everything from clothing to eyewear to shoes. But core area of competition where Coach, Kate Spade, and Michael Kors most fiercely compete, and where they boast eye-popping market shares, are in handbags—specifically, “accessible luxury” handbags (the Relevant Market in this instance). The market for “accessible luxury” handbags has distinct customers such as middle- and lower-income consumers who seek out high-quality items at affordable prices.
The Commission noted that the proposed acquisition will eliminate fierce head-to-head competition between Coach, Kate Spade, and Michael Kors. It was pointed out that a merger is unlawful if it substantially lessens competition between the parties independent of the analysis of market shares, as recognized by the U.S. Department of Justice and FTC Merger Guidelines, 2023 (“Merger Guidelines”). “Tens of millions of consumers are the beneficiaries of an intense, long-standing rivalry between Coach, Michael Kors, and Kate Spade that would be squelched as a result of the Proposed Acquisition. This fierce head-to-head competition, which is monitored by the highest levels of Tapestry and Capri, comes in many forms—prices, discounts, promotions, innovation, design, marketing, and brick-and-mortar store experiences”.
By combining three of the top players in the market for “accessible luxury” handbags in the United States—including the top two (Coach and Michael Kors), the Proposed Acquisition will significantly result in a highly concentrated market, making the Proposed Acquisition presumptively unlawful.
Furthermore, it was noted that elimination of this multi-faceted competition between the close rivals will harm consumers and employees, likely leading to higher prices, decreased innovation, and reduced wages.
The Commission noted that the Proposed Acquisition is also part of Tapestry’s pattern and strategy of serial acquisitions. The Proposed Acquisition builds on a deliberative, decade-long M&A strategy by Tapestry and is just one in a string of acquisitions for Tapestry to achieve its goal to become the major American fashion conglomerate which will only solidify its dominance in the relevant market of “accessible luxury,” and stifle competition from smaller competitors and potential entrants and contribute to a trend of consolidation in the broader fashion industry.
[In the Matter of Tapestry Inc and Capri Holdings Ltd., Docket No. 9429, decided on 22-04-2024]