Shares of Capri Holdings Limited (CPRI) took a nosedive on Friday, plunging by nearly 47% to $21.94, after a judge blocked its acquisition by Tapestry, Inc. (TPR). The decision, which came after an eight-day trial, grants the Federal Trade Commission’s (FTC) motion for a preliminary injunction, effectively halting the merger. The FTC argued that the merger would stifle competition in the U.S. handbag market, a claim that the judge ultimately agreed with.
Capri, the parent company of luxury brands such as Jimmy Choo, Versace, and Michael Kors, immediately announced its intention to appeal the ruling. The company stated, “Our commitment to glamorous style and craftsmanship is at the heart of each of our luxury brands.” They emphasized the unique heritage of their brands, the diversity and passion of their team, and their dedication to clients and communities as key strengths.
Meanwhile, Tapestry shares are trading higher on Friday following the news. Wells Fargo analyst Ike Boruchow, who maintains an Overweight rating on Tapestry, raised the price target from $50 to $65. In a press release, Tapestry expressed their disappointment with the judge’s decision, calling it “incorrect on the law and the facts.” They asserted that the industry is highly competitive and dynamic, with constant expansion and a fragmented landscape of established players and new entrants.
Despite the setback, Tapestry maintained that the merger is “pro-competitive and pro-consumer” and intends to appeal the decision as per their obligations under the merger agreement. They, too, face competitive pressures from both lower- and higher-priced products.
This decision has sent shockwaves through the luxury fashion industry, with investors closely watching the outcome of the appeal. Both companies are expected to vigorously pursue their arguments, with the final decision having significant implications for the future of the handbag market.
Boruchow, who maintains an Equal-Weight rating on Capri Holdings, lowered the price target from $42 to $23. His analysis suggests a cautious outlook on Capri’s future, particularly in light of the failed acquisition. While the judge’s decision presents a significant challenge to Capri Holdings, the company’s commitment to appeal suggests that the battle for control of the luxury handbag market is far from over.