FTC reportedly considering blocking merger

The Federal Trade Commission is preparing to sue to block a luxury f ashion m egamerger, Tapestry’s $ 8.5 billion takeover of Capri Holdings, two people with knowledge of the matter said.

The FTC’S five commissioners are expected to meet next week to discuss the case, a move that could precede a formal vote on whether to file a lawsuit, the two people said. The duo, not authorized to discuss the deliberations, said it was still possible that the agency could opt not to sue.

The deal, intended to bring together labels such as Tapestry’s Coach and Kate Spade with Capri’s

Versace and Michael Kors, would create a n American luxury conglomerate t o compete with European powerhouses like Louis Vuitton’s parent, LVMH, and Kering, the owner of Gucci.

Monopoly cases in the fashion industry are rare because there is no shortage of new labels looking to undercut legacy brands. “It is the paradigmatic part of the economy where there is ample competition,” said Howard Hogan, chair of the fashion, retail and consumer practice at the law firm Gibson Dunn.

Investors have increasingly bet against a completion of the deal, which was announced last August. Shares of Capri have fallen more than 20% this year, while

Tapestry’s have gained 6%. ( Typically, shares of the target of a takeover gain while shares of the buyer fall.) Capri’s shares slipped further in t rading Wednesday, while Tapestry’s gained.

The FTC has been s crutinizing the deal for months, even as it was approved by regulators in the European Union and Japan. U. S. regulators could argue that putting Michael Kors and Coach under the same roof may limit the need for those brands to compete on price, which could in turn make their products more expensive for consumers.

Tapestry and Capri could point to the rise of upstart brands like Cult Gaia and Aupen, which celebrities like Taylor Swift have helped make popular.

The case may also invite political scrutiny. Regulators sometimes introduce competition lawsuits if they think a case has a particularly strong chance to establish precedent that c an b e used in future cases, as the Justice D epartment did three decades ago in its f ailed effort to block Gillette’s takeover of a luxury fountain pen company, said William Kovacic, a former FTC chair.

But the Tapestry- Capri deal, Kovacic added, is “not a case that has great appeal as a way of protecting the downtrodden.”

Capitol Forum previously reported that the FTC was leaning toward suing to block the deal.