The future of Tapestry’s $8.5 billion acquisition deal for Capri Holdings is now in the hands of federal Judge Jennifer Rochon, with investors feeling even more bullish after closing arguments Monday afternoon. .
Gaining momentum as the hearing progressed, Capri stock rose 7.5% to close at $42.43. Rochon zeroed in on how the government defines “accessible luxury goods” in this case. (Tapestry stock fell 2% to $46.98, perhaps reflecting the wariness investors tend to feel about companies before making an acquisition, or perhaps (This probably reflects how expensive it is.)
Tapestry agreed to buy Isle of Capri last year for $57, so the market is still pricing in considerable risk for the deal, but a mini-rebound pushed the company’s stock higher in April, prompting the Federal Trade Commission to halt the deal. This is the highest level since before the lawsuit was filed.
If the deal goes through, it would add Capri’s Michael Kors brand to Tapestry’s portfolio, which also includes handbag retailers Coach and Kate Spade. The hearing was technically held to determine whether the court should issue a preliminary injunction to halt the deal, but a delay would likely halt the deal and determine the success or failure of the case. .
Monday’s arguments followed a seven-day court session earlier this month in which the FTC argued the deal would create a powerhouse with a 58% share of the accessible luxury handbag market. That’s enough leverage to raise prices by 17% and cost consumers $365 million a year, according to government economists.
Tapestry and Capri argued that the handbag market was too competitive to do so.
Abby Dennis presents the FTC’s closing arguments, showing that the 4 million documents produced in the lawsuit show how companies use the term accessible luxury when evaluating competitors and monitoring pricing in the marketplace. I pointed out again that it shows how it was used.
Tapestry CEO Joan Crevoisella and Capri CEO John Idle both spoke at the hearing, and Dennis said that accessible luxury goods are a form of “brand positioning.” he said.
Coach Ambassador Naza with a quilted tabby bag.
When the case was first filed, Tapestry insisted on the government’s definition of “accessible luxury,” but was told that would become clearer as the case unfolded.
The hearing examined how the government arrived at its view of the market, including NPD data, Tapestry’s internal research into other brands customers considered before making their last handbag purchase, and a ton of economic analysis. Many testimonies were obtained regarding this.
But no easy definition of accessible luxury emerged, and the judges themselves seemed to be looking for one.
“What are the parameters?” Rochon asked. “Some boundaries are necessary.”
Dennis said the industry recognizes the term accessible luxury, characterized by craftsmanship, durability, high-quality materials and large-scale production.
“You don’t have to be as precise as a NASA scientist to draw the market line,” Dennis said, pointing to the so-called “Brownshoe” factor that sets precedent when courts evaluate acquisitions.
Dennis pointed to an email Crevoisella sent to colleagues that said, “Our supply chain has created an accessible luxury market.” “I didn’t come up with this idea out of thin air,” he said.
The key question now is whether the FTC needs to come up with anything more to persuade Rochon.
In closing remarks for Tapestry, Latham & Watkins attorney Lawrence Batterman said the government’s analysis contained “a series of fatal flaws” and that “the FTC “We have not been able to define the market that we claim to be.”
Mr. Rochon’s decision will not only determine whether a deal goes through, but could also shape future deals as potential buyers seek to break deals through newly evolving legal standards. .
