Capri Shares Tumble 46% As Court Blocks $8.5 Billion Merger With Tapestry

Shares of Michael Kors owner Capri plummeted nearly 46% in premarket trading after a U.S. judge blocked its pending $8.5 billion merger with handbag maker Tapestry, Reuters reported.

Should the deal collapse, "Capri could potentially seek another suitor" as it deals with operational challenges at Michael Kors. I Photo: Windmemories Wikimedia Commons

Tapestry had agreed to acquire Capri last year to create a U.S. luxury giant that could compete with larger European rivals by combining brands like Coach, Kate Spade, Versace, Jimmy Choo, and Michael Kors under one umbrella.

However, the Federal Trade Commission (FTC) filed a lawsuit in April to block the deal, arguing that it would eliminate "direct head-to-head competition" between the top two U.S. handbag makers.

Should the deal collapse, "Capri could potentially seek another suitor" as it deals with operational challenges at Michael Kors, said Dana Telsey of Telsey Advisory Group.

Tapestry’s shares, in contrast, rose nearly 13%. Analysts noted that while the deal was a risk for the parent company of Coach, Tapestry was well-positioned to help revive Capri. During an eight-day trial in September, the FTC argued that the merger would create a company with the power to unfairly raise prices.

U.S. District Judge Jennifer Rochon rejected the companies' defense, which included the argument that handbags are non-essential items and consumers could control prices by choosing not to buy them if they became too expensive.

Tapestry has announced that it plans to appeal the ruling, stating that it believes the decision was incorrect.