Carolina Varas – Fashion has a price, but accurately representing information to shareholders does not. Yet for Capri Holdings, the cost of failing to do so is proving to be steep. Capri Holdings Limited, a multinational fashion holding company, owns globally recognized brands such as Versace, Jimmy Choo, and Michael Kors. Similarly, Tapestry Inc., an American multinational fashion holding company, owns Coach New York, Kate Spade New York, and Stuart Weitzman. On August 10, 2023, Tapestry announced a final agreement to acquire Capri Holdings, aiming to create a “powerful global house of iconic luxury and fashion brands.”
This high-profile fashion acquisition quickly drew significant attention, including that of the Federal Trade Commission (FTC), which moved to block Tapestry and Capri Holdings’ $8.5 billion deal on April 22, 2024. Horizontal mergers like this one raise antitrust concerns due to their potential to reduce competition. Antitrust agencies, like the FTC, are guided by Section 7 of the Clayton Act and Section 1 of the Sherman Act, which prohibit mergers and acquisitions that might substantially “lessen competition”, restrain trade, or “tend to create a monopoly.”
In the FTC’s administrative complaint against the Capri acquisition, they argued that the merger would eliminate direct competition between key brands—Coach, Kate Spade, and Michael Kors—in the “accessible luxury” handbag market, potentially resulting in higher prices, reduced innovation, and fewer choices for consumers. The Commission also expressed concerns that the merger would “further entrench” Tapestry’s market dominance, making it harder for new competitors to enter. Despite assurances from both Tapestry and Capri Holdings that the “deal was pro-competitive and pro-consumer,” the Southern District of New York granted the FTC’s motion on October 24, 2024, to preliminarily enjoin and block the merger.
The decision dropped—and so did Capri Holdings’ stock—which plunged almost 50% in a single day, closing at $21.26 per share on October 25, 2024. In the wake of this staggering loss, shareholders swiftly filed a class action securities lawsuit, seeking to recover damages for those affected by the alleged securities fraud between August 10, 2023, and October 24, 2024.
Public corporations, like Capri, have fiduciary duties, requiring officers and directors to act in the shareholder’s best interests by avoiding conflicts of interest and exercising reasonable diligence. The class action lawsuit alleges that Capri broke their fiduciary duty when the board of directors withheld key information regarding the merger, leaving shareholders misinformed. According to the complaint, both Capri and Tapestry recognized that the accessible-luxury handbag market—where brands like Coach, Kate Spade, and Michael Kors compete—was distinct from both high-end luxury and mass-market segments. Despite this understanding, investors were not informed that the companies maintained separate production facilities and supply chains for their accessible luxury handbags, nor that Coach and Michael Kors were considered direct competitors. The complaint further claims that a primary motivation behind the acquisition was to reduce competition in this market, thereby enabling higher prices and limiting consumer choice. Additionally, it alleges that Capri significantly understated the risk of regulatory intervention, leaving investors unprepared for the possibility that the merger could be blocked. With the deadline for shareholders to file a lead plaintiff motion now expired, this class action lawsuit is well underway, raising questions about the potential financial and legal fallout. The case has the potential to reshape how future mergers in the retail sector are scrutinized by antitrust agencies and how companies approach their disclosure obligations to ensure SEC compliance. One thing is clear: transparency in mergers and acquisitions is essential, as misleading statements can lead to serious legal and financial consequences. This lawsuit is certainly worth following—if the court rules in favor of the shareholders, it could set a significant precedent, highlighting the steep price of nondisclosure in merger and acquisition transactions, especially when coupled with a failed deal.
