On Thursday, October 24, a federal judge in New York ruled against Tapestry’s bid to acquire Capri Holdings, the parent company of Michael Kors, for $8.5 billion. This decision sent Capri’s stock plunging by over 50% in after-hours trading, eventually settling at a decline of about 45%. In contrast, Tapestry’s stock saw a significant increase of 14% after the ruling.

This judgment marks a significant victory for the Federal Trade Commission (FTC), effectively halting Tapestry’s plans to consolidate iconic brands like Coach, Michael Kors, Kate Spade, Versace, and Jimmy Choo under one umbrella. It also thwarts Tapestry’s strategy of building a formidable American competitor to European luxury giants like LVMH.

Tapestry announced its intention to acquire Capri last August, but the FTC filed a lawsuit in April, arguing that the merger would stifle competition in the “affordable luxury handbag” market, potentially leading to higher prices that would affect budget-conscious consumers. Tapestry and Capri countered by asserting that the handbag market remains highly competitive, with even higher-end brands offering more affordable options.

However, Judge Jeniffer Rochon sided with the FTC, stating in her 169-page ruling, “The fashion industry has reached a tipping point,” and issued a temporary restraining order to prevent the merger while the FTC pursues a permanent block through its administrative court. In many cases, companies often abandon their merger plans when faced with a federal judge’s injunction.

Tapestry and Capri expressed disappointment over the temporary restraining order, indicating their intention to appeal. According to FTC records, the administrative proceedings are set to commence after December 9.