Capri Holdings ( CPRI ), the parent company of Michael Kors and Jimmy Choo, saw shares tumble about 45% in premarket trading on Friday after a U.S. judge blocked a pending $8.5 billion merger with Coach owner Tapestry ( TPR ).
In a court filing obtained by Yahoo Finance, US District Judge Jennifer Rochon ruled that “antitrust has come into fashion,” arguing that a merger between the two fashion powerhouses would “significantly lessen competition in the market for affordable-luxury handbags.”
Tapestry and Capri announced their proposed merger last year. The combination would have brought six high-end fashion brands under one roof: Tapestries Coach, Stuart Weitzman and Kate Spade along with Caprice Versace, Jimmy Choo and Michael Kors.
Shares of Tapestry moved in the opposite direction of Capri, rising roughly 12% as a result of the news late Thursday.
In a statement released Thursday evening, Tapestry said it plans to appeal the decision, saying “Tapestry and Capri operate in an industry that is intensely competitive and dynamic, constantly expanding, and highly fragmented between established players and new entrants.”
“We face competitive pressures from lower and higher priced products and continue to believe this transaction is pro-competitive and pro-consumer.”
Federal Trade Commission had moved to block Acquisition in April, a preliminary injunction to stop the deal. The restraining order was issued by Rochon on Thursday.
At the time, the company argued a merger “[threaten] Hourly workers lose the benefits of higher wages and more favorable workplace conditions to deprive consumers of competition for affordable handbags.”
Tapestry fought those claims, arguing that a merger was necessary to compete against dominant European players like Gucci.
The FTC blocks the ruling merger while it conducts its proceedings, but all parties will have an opportunity to argue their case before the FTC.
Before Thursday’s ruling, Pauline Brown, the former North American head of LVMH, which owns fashion brands such as Louis Vuitton and Dior, told Yahoo Finance that the FTC would face a “high hurdle” in making its case.
“The tricky part of their legal argument is that there is a natural market … for what they call luxury handbags at accessible prices,” he said at the time. “The truth is, I think it’s a spectrum.”
He added that saying consumers will be hurt by higher prices is a “weak argument” because “customers, if they’re happy, they’ll still come to the right designs, at the right price. If they’re not, they’re going to go to another player.”
