Kate Spade deal veto is lucky dip for trustbusters
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Jonathan Guilford
NEW YORK, April 23 (Reuters Breakingviews) -If one company controls Kate Spade and Michael Kors, does that reduce competition for handbags? And hurt the labor market? And roll up too much customer data? That’s the kitchen-sink approach U.S. trustbusters took on Monday in challenging Tapestry’s TPR.N $8.5 billion takeover of rival Capri CPRI.N. It’s a soft target for competition cops eager to battle-test novel theories.
It might seem a stretch that two medium-sized companies could sew up the American handbag market. Bernstein analysts peg the pair’s combined share of the U.S. bag business at 17%. But antitrust cases stand or fall on whether regulators can draw a conceptual line around companies’ products to show that they face few true competitors.
The Federal Trade Commission’s preferred definition in this case is “affordable luxury.” In practice, plenty of other handbag makers offer their wares at similar prices to Tapestry, whose brands include Kate Spade, and Capri, owner of Michael Kors. Direct-to-consumer brands like Cuyana, maker of a $268 bag sported by Meghan Markle, Britain’s Duchess of Sussex, compete at the lower end. European marques like Saint Laurent, owned by luxury giant Kering PRTP.PA, might dip into the mid-market.
The FTC responds that it is focusing on the bags’ physical attributes. Its definition refers to products made with high-quality materials largely in Asia. Using similarly carefully drawn boundaries, Tapestry and Capri have a 53% market share, Bernstein reckons.
That’s a neat solution, provided courts agree. But the FTC isn’t relying on a single path to victory. The agency is also applying new rules for policing mergers which it finalized in December. Key among them is that market share is irrelevant if companies compete head-to-head by basing prices on what their rival charges. The FTC’s heavily redacted complaint hints at tantalizing evidence. Shareholders take an increasingly dim view of the deal going forward.
Testing out this new legal doctrine isn’t a one-off. If judges accept the FTC guidelines, that establishes precedent for future cases. And there’s lots to test. The agency says this deal would reduce competition for hiring, and that new entrants would struggle to compete because of Tapestry’s hoard of consumer data.
This lucky-dip approach is far from guaranteed to succeed. The FTC has struggled elsewhere, as in its losing case against Microsoft’s acquisition of video-game developer Activision Blizzard. But Tapestry and Capri do not have technology giants’ resources for mounting legal defenses. The case also lacks the broader political considerations at work in, say, the takeover of United States Steel X.N. Consumers, though, may favourably note the government’s attempts to maintain competition in a product they recognize. That offers trustbusters an opportunity to mount a challenge with far-reaching implications.
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CONTEXT NEWS
The U.S. Federal Trade Commission on April 22 filed an administrative complaint and simultaneously authorized a lawsuit in federal court to block Tapestry’s $8.5 billion acquisition of Capri.
The complaint charges that the two companies dominate the market for “affordable luxury” handbags. It defines these as mass-market bags, manufactured in Asia from high-quality materials and sold at mid-market prices.
The complaint notes that new guidelines issued in 2023 argue that a merger is illegal if it substantially lessens intense, head-to-head competition regardless of market share.
Capri shares fell as much as 3.1% to $36.79 in early trading on April 23. Tapestry’s cash offer values the shares at $57 each. Tapestry shares were down as much as 3.9% at $38.73.
Graphic: Investors give Capri deal increasingly poor odds https://reut.rs/3Wcw2wp
Editing by Peter Thal Larsen and Sharon Lam
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