Deep Dives
The Federal Trade Commission (“FTC”) made headlines in April when it issued an administrative complaint and authorized a lawsuit in a New York federal court in furtherance of an effort to block a proposed deal between Tapestry Inc. and Capri Holdings. According to the consumer protection-focused regulator, the $8.5 billion deal, which was first announced in August 2023, “seeks to combine three close competitors – Tapestry’s Coach and Kate Spade brands and Capri’s Michael Kors brand.” If allowed, the FTC alleges that the merger “would eliminate direct head-to-head competition between Tapestry’s and Capri’s brands” and “give Tapestry a dominant share of the ‘accessible luxury’ handbag market, a term coined by Tapestry to describe quality leather and craftsmanship handbags at an affordable price.”
At the heart of the case are questions of competition and consumer harm, but more specifically, the case centers largely on how the FTC defines the relevant market. According to the regulator, “Coach, Kate Spade, and Michael Kors brands compete to sell ‘accessible luxury’ handbags” in a “distinct market” that has “peculiar characteristics, as well as distinct prices and consumers and unique production facilities” that distinguishes it from the markets for other types of handbags.
In early responses, both Tapestry and Capri have pushed back against the FTC’s narrow framing of the market in which they operate, arguing, among other things, that the regulator is taking too constrained a view and in doing so, ignoring the “market realities” at play. While focused squarely on entities in fashion, the FTC’s case – one of the latest demonstrations of its quest to block “serial acquisitions” and roll-up strategies that it claims will lead to consolidation and chip away at competition – will likely have implications that reverberate beyond the immediate fashion market, namely for “serial acquirers” that are looking to merge.
Coming amid other FTC-initiated challenges involving JetBlue and Spirit, Kroger and Albertsons, Tempur Sealy and Mattress Firm, Microsoft and Activision Blizzard, etc., Baker Botts partner Jeffrey Oliver says that FTC chair Lina Khan and Justice Department antitrust chief Jonathan Kanter “are definitely trying to push the limits of antitrust in an effort to expand what is considered to be illegal behavior.”
As the closely-watched matter plays out in an adjudicative proceeding, as well as a case in the U.S. District Court for the Southern District of New York (“SDNY”), we have put together a timeline of notable filings (that we will continue to update regularly) in order to help you to stay abreast of substantive developments …
Aug. 20, 2024: Tapestry and Capri have filed an opposition brief, urging the SDNY to shoot down the FTC’s bid for a preliminary injunction, arguing that the regulator has “built [its] case on theories and models that are completely divorced from the marketplace realities,” and that the case is “devoid of any focus on what matters most in an antitrust case: the options available to the consumer.”
Aug. 6, 2024: In a sealing filing, the FTC is seeking a preliminary injunction to block Tapestry and Capri “from consummating their proposed merger, or otherwise effecting a combination of [their] operations” and direct them to “maintain the status quo until either: (1) the completion of all legal proceedings by the [FTC] relating to the proposed merger, including all appeals, or (2) further order of the Court, including upon the request of the[FTC], before completion of such legal proceedings.”
May 16, 2024: Tapestry and Capri filed their respective answers with the SDNY, arguing, among other things, that regardless of how the FTC defines the market, the regulator will fall short in making its anti-competition case against them, “as economic analysis will show at trial that in any properly defined market, Coach, Kate Spade, and Michael Kors represent less than 30 percent of sales [in the handbag market], which does not give rise to any presumption of likely harm in this highly dynamic and differentiated industry.”
May 14, 2024: SDNY Judge Jennifer Rochon rejected Tapestry and Capri’s motion for a more definite statement, deciding that the FTC’s complaint is “not so unintelligible or unclear that defendants lack sufficient notice of the allegations made against them” and thus, a more definitive statement of the market will come in connection with the parties’ discovery.
May 6, 2024: Tapestry and Capri filed their respective answers and defenses with the FTC Office of Administrative Law Judges. (Tapestry’s answer is here and Capri’s answer is here.) At a high level, they maintain that the proposed merger “poses no risk of anticompetitive harm to any consumer of handbags,” namely due to robust competition in the handbag space. “Far more than 150 handbag brands, across prices and categories, compete today with Tapestry and Capri,” they assert.
In the face of “this market reality that handbag manufacturers and consumers experience every day,” Capri claims that the FTC relies on “cherry-picked sound bites … while completely ignoring important and relevant context, to allege that Michael Kors, Coach, and Kate Spade are dominant handbag brands available in a so-called ‘accessible luxury’ market and are one another’s closest competitor.”
Capri points to the below graphic, which charts “just a selection of the parties’ competitors,” in order to illustrate that there are a “myriad” of brands offering handbags across “a wide and essentially contiguous spectrum of pricing.”
May 3, 2024: Tapestry and Capri filed a motion for a more definite statement or, in the alternative, to require the FTC to answer one contention interrogatory regarding the alleged relevant market and a corresponding memo in support, arguing that the court should order the FTC to provide “a more definite statement of the contours of its alleged ‘accessible luxury handbag’ relevant product market.”
Apr. 24, 2024: The FTC filed an unopposed motion for entry of stipulated temporary restraining order with the SDNY in order to “preserve the status quo during the pendency of the Commission’s administrative adjudication of whether the Proposed Transaction violates the antitrust laws.” The parties agreed to the entry of a temporary restraining order preventing Tapestry and Capri “from consummating the Proposed Transaction until after 11:59 p.m. Eastern Time on the fifth business day after this Court rules on the requested preliminary injunction or a date the Court may set, whichever is later.”
Apr. 22, 2024: The FTC issued an administrative complaint and filed a corresponding complaint with the SDNY to block Tapestry’s acquisition of Capri Holdings, alleging that Tapestry’s acquisition of Capri will “eliminate fierce competition between the two companies.”
Apr. 15, 2024: Market regulators in the European Union and Japan approved the proposed acquisition. Approval from the EU, in particular, “is another important milestone and a step towards closing the deal. It’s a recognition of what we see – this is a transaction that is going to be great for consumers in a highly competitive market,” Tapestry CEO Joanne Crevoiserat said in a statement.
Aug. 10, 2023: Tapestry, Inc. announced that it had reached a “definitive agreement” to acquire Capri Holdings Limited in furtherance of a deal that it said would “establish a powerful global house of iconic luxury and fashion brands.” Under the terms of the transaction, Tapestry said that Capri Holdings shareholders will receive $57.00 per share in cash for a total enterprise value of approximately $8.5 billion.
The case is Federal Trade Commission v. Tapestry, Inc., 1:24-cv-03109 (SDNY).
For the latest updates in this case, please visit our Federal Trade Commission v. Tapestry timeline.