Capri Holdings (CPRI) stock plunged nearly 50% out of the gate Friday after a U.S. judge on Thursday blocked the luxury retailer's pending $8.5 billion merger with Tapestry (TPR). The deal would have brought Capri's family of brands – Michael Kors, Jimmy Choo and Versace – together with Tapestry's high-end Coach, Kate Spade and Stuart Weitzman segments.
The merger was originally announced in August 2023 and the Federal Trade Commission (FTC) moved to block it in April 2024, arguing that "this deal threatens to deprive consumers of the competition for affordable handbags, while hourly workers stand to lose the benefits of higher wages and more favorable workplace conditions."
After an eight-day trial in New York, U.S. District Judge Jennifer Rochon sided with the FTC and rejected Capri and Tapestry's defense of the deal, according to Reuters. The companies argued that "handbags are nonessential items whose price consumers can control by not buying them if they become too expensive," which the judge said "ignores that handbags are important to many women, not only to express themselves through fashion but to aid in their daily lives."
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"These bags are a product which millions of people rely on throughout their daily lives," Henry Liu, director of the FTC's Bureau of Competition, told Fashion Dive. "The decision will ensure that Tapestry and Capri continue to engage in head-to-head competition to the benefit of the American public."
The decision "is disappointing and, we believe, incorrect on the law and the facts," said Tapestry in a statement.
The retailers "operate in an industry that is intensely competitive and dynamic, constantly expanding, and highly fragmented among both established players and new entrants. We face competitive pressures from both lower- and higher-priced products and continue to believe this transaction is pro-competitive and pro-consumer," it added.
Capri and Tapestry said they intend to appeal the ruling.
Eric Clark, portfolio manager of the Rational Dynamic Brands Fund, disagrees with the judge's decision.
"We don’t cover the two brands because they weren't relevant enough to make our top 200 brands index, so by definition, this shocking block of the acquisition of CPRI makes zero sense," Clark said in emailed commentary. "These are two marginal brands trying to compete, so they have zero chance to control the handbag market, hurting consumers. This is a clear overreach of government."
Is Capri stock a buy, sell or hold?
Friday's negative price action is nothing new for Capri. Indeed, heading into today's trading, the consumer discretionary stock was down more than 17% for the year to date.
And Wall Street is on the sidelines when it comes to the small-cap stock. According to S&P Global Market Intelligence, the average analyst target price for CPRI is $41.50, roughly in line with its October 25 close but representing implied upside of nearly 85% to current levels. Meanwhile, the consensus recommendation is a Hold.
However, the ratings and price targets on CPRI stock could very well be adjusted in the days and weeks ahead as analysts digest the news of the blocked merger.
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