Judge sides with FTC, blocking Kate Spade and Michael Kors merger
A federal judge in New York on Thursday sided with the Federal Trade Commission, effectively blocking the $8.5 billion merger of the company behind Coach and Kate Spade with the company that controls Michael Kors.
"Antitrust has come into fashion," the judge wrote as she sided with the FTC, which argued the merger of the two companies -- Tapestry and Capri -- would substantially lessen competition in the market for "accessible luxury" handbags.
In April, the FTC sued to block the sale, arguing that these brands dominate the market and that if they combined, consumers would suffer by paying higher prices.
"In the Court’s view, the conclusion most consonant with the evidence is that handbag consumers do 'purchase brands.' To ignore the peculiar role of brands in the handbag market would be to ignore the commercial realities of the industry," Judge Jennifer Rochon wrote.
The companies argued there is already plenty of competition in the handbag marketplace but the judge disagreed because she found they mainly compete with each other and not with mass-market or true-luxury brands.
"Coach, Kate Spade, and Michael Kors do not regard brands like Zara and Louis Vuitton as nearly as important to their bottom line as they regard one another, along with other usual suspects like Tory Burch and Marc Jacobs," Rochon's opinion said. "That there is a broad market for handbags overall does not negate the existence of a relevant submarket of affordable-luxury handbags."
The judge said the FTC convinced her that the merger of the two companies would result in a combined firm holding "excessive market share and market concentration, thus establishing a presumption that the merger’s effects will be anticompetitive."
Michael Kors testified his handbag line had reached a point of "brand fatigue" and needed the merger to revitalize it. The judge found that argument unconvincing.
"Simply put, Michael Kors faces no imminent risk of business failure," the opinion said.
