Capri Holdings (CPRI, Financial), a prominent American fashion luxury group, saw its stock drop over 45% following a federal judge's decision to halt its $8.5 billion sale to Tapestry (TPR). Conversely, Tapestry’s stock price surged by more than 13% in after-hours trading.
The court document revealed that U.S. District Judge Jennifer Rochon concluded the merger would reduce competition, especially in the "affordable luxury" market, and subsequently approved the Federal Trade Commission's (FTC) request for a preliminary injunction to block the merger. The FTC, which filed the lawsuit in April, argued that the merger would eliminate competition among brands like Coach, Kate Spade, and Michael Kors.
Capri and Tapestry countered, asserting that the FTC's definition of the "affordable luxury" market was flawed, claiming that handbag retailers compete with numerous manufacturers and new entrants. However, Judge Rochon stated that the merger of the two companies, deemed close competitors, posed a risk of reducing competition significantly.
Analysts have weighed in on the implications of the halted merger. Wells Fargo analyst Ike Boruchow suggested Capri's stock could drop to $28 if the deal collapses. UBS projected Capri's market value might fall to $15 per share, while Citibank estimated a decline to $24. Baird analyst Mark Altschwager mentioned Capri's standalone value could be around $20 if the merger does not proceed.
In response, Capri plans to join Tapestry in appealing the district court's decision to approve the FTC's motion blocking their merger.
