On October 24, 2024, the Federal Trade Commission (FTC) successfully blocked the planned merger of Tapestry and Capri Holdings, which would combine popular fashion brands such as Coach, Kate Spade, and Michael Kors.
The decision marks a notable victory for the FTC after several recent losses in merger enforcement challenges. Nevertheless, this decision is broadly consistent with previous reviews of horizontal mergers, as it focuses specifically on companies’ internal documents.
The decision also avoids the more novel harm theory proposed by the new merger guidelines. Therefore, this case is unlikely to represent a significant step toward the interventionist enforcement approach sought by antitrust regulators. See our December 21, 2023 client alert, “DOJ and FTC Announce 2023 Final Merger Guidelines, Formalize Aggressive Merger Enforcement Handbook.”
incident
The FTC filed suit in April seeking to block Tapestry’s $8.5 billion acquisition of Capri Holdings. The FTC argued that merging Tapestry-owned brands Coach with Kate Spade and Capri’s Michael Kors would preclude competition in the “accessible luxury” handbag market. The government says in its complaint that the parties “boast high-quality leather and craftsmanship (as distinct from mass-market handbags) and affordability (as distinct from true luxury goods).” It claimed to be a direct competitor in the sale of handbags. handbag). The FTC describes both brands as having a “laser-like focus on each other,” and the merger will consume intense competition on discounts, pricing, promotions, innovation, design, marketing, employee pay and benefits, and more. He claimed that it would be taken away from him.
decision
The Southern District of New York granted the FTC’s request for a preliminary injunction against the merger. The court upheld the FTC’s market definition, finding that “accessible luxury” handbags are distinguishable from “mass market” and “true luxury” bags. Applying the elements of Brown Shoe, the court held that “accessible luxury” bags are typically made of comparable materials, produced in production facilities in Southeast Asia, discounted in a similar manner, and of “high quality”. Because it is considered a product, we have determined that it constitutes a unique market. Sold at an affordable price.
Defendants challenged this definition as “difficult” and “wild,” but the court pointed to a series of regular documents in which defendants themselves used the term “affordable luxury.” The documents also played a key role in the court’s final conclusion that the deal was anticompetitive.
In concluding that Tapestry and Capri “have a deep competitive commitment to each other’s brands,” the court cited internal communications and documents describing Michael Kors as Coach’s closest competitor and vice versa. Emphasized strategic documents. To demonstrate price competition, the opinion points to documents showing that the defendants closely monitored and responded to each other’s pricing actions. In particular, the court focused on Tapestry’s presentation outlining its M&A prospects, including a slide suggesting that a merger with Capri would create “opportunities to reduce MK’s discount.”
The court also referenced various communications in which Michael Kors executives tracked and responded to Coach’s actions in the marketplace, finding that the parties competed in marketing strategy. Ultimately, the court found various documents to be more reliable than the merging parties’ trial testimony, calling them “self-serving.” The defendants filed a notice of appeal with the Second Circuit on October 28.
Important points
The preliminary injunction is a notable victory for the FTC, which has recently suffered a series of high-profile losses in federal court (Microsoft/Activision, Meta/Within, etc.). Nevertheless, as highlighted in the key points below, this decision does not reflect a departure from merger review standards.
Courts continue to apply traditional market definition analysis. Although “accessible luxury handbags” may seem like a niche and unlikely market, the court’s decision relies on traditional evidence and established market-defining principles. The court applied a traditional Brownshoe analysis and found that such bags share manufacturing and pricing characteristics that are different from lower-end and luxury brands. Therefore, this decision should not be seen as a renewed willingness on the part of courts to embrace esoteric markets without supporting evidence. Corporate documents remain important in merger reviews. This decision demonstrates the continued importance of ordinary business documents in merger reviews. Although the court also cited economic data, it found the companies’ documents particularly useful in establishing the closeness of competition between the parties and the likely impact of the transaction. Indeed, the court summed up, “despite efforts by Tapestry and Capri’s witnesses to “minimize the significance of evidence of direct competition between them,” “the documents speak for themselves.” It is set out in a Tapestry document explaining why the deal gives the combined company the opportunity to charge a higher price. Courts may be more comfortable relying on long-standing precedent than on the novel theories of new merger guidelines. The Tapestry/Capri decision will be the first to be litigated under new merger guidelines announced by FTC and Justice Department officials in December 2023. In its complaint, the FTC relied in part on one of the new guidelines (Section 2.2), arguing that: , “A merger that substantially reduces competition between the parties is unlawful, regardless of an analysis of market share.” Notably, the court’s decision avoided this argument, instead considering market and market concentration levels. Relies on traditional analysis.
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