On October 24, Judge Rochon of the U.S. District Court for the Southern District of New York blocked an $8.5 billion dollar acquisition between Tapestry, Inc. (“Tapestry”) and Capri Holdings Limited (“Capri).[1] Tapestry’s acquisition of Capri sought to unite the top two U.S. handbag makers; namely, Tapestry’s Coach, Kate Spade, and Stuart Weitzman with Capri’s Versace, Jimmy Choo, and Michael Kors.[2] However, the Federal Trade Commission (“FTC”) believed the acquisition would undermine competition and sued to block the deal last April.[3] The FTC stated the proposed merger could reduce wages, diminish employee benefits, and threatened millions of American consumers.[4] The FTC’s recent suit highlights the Biden administration’s aggressive approach on antitrust regulation.
Under the Biden administration, the FTC and Department of Justice (“DOJ”) have markedly escalated antitrust enforcement efforts.[5] For example, in 2022, the FTC and DOJ brought 50 antitrust enforcement actions, marking the highest level of enforcement activity in more than two decades.[6] A year later, in 2023, the Biden administration dramatically increased funding for the FTC and the Antitrust Division of the DOJ under the Consolidated Appropriations Act (“the Spending Bill”).[7] Under the Spending Bill, funding for the FTC and Antitrust Division increased by $99 million and $58 million, respectively.[8] In comparison, between 2016 and 2019, the FTC’s annual budget increased by only $3 million, while the Antitrust Division’s budget remained largely the same.[9]
The FTC’s mission is “to prevent business practices that are anticompetitive or deceptive or unfair to consumers.”[10] Yet, it is unclear whether the FTC’s aggressive approach in regulating industries has truly promoted competition, or, if it has generated a chilling effect on our economy, and more specifically, merger activity.[11] The U.S. Chamber of Commerce believes the latter, arguing that “the FTC has radically departed from its core mission to protect consumers and competition.”[12] One of the main assumptions under the Biden administration has been that market power is contradictory with competition.[13] For example, under the recently imposed 2023 Merger Guidelines, a merger that creates more than 30% market share is unlawful.[14] Although the reasoning for its implementation is based on the U.S. Supreme Court’s 1963 ruling in U.S. v. Philadelphia National Bank, the 30% figure has faced criticism from many economists and federal courts.[15]
However, an increase in market power allows a firm to achieve economies of scale and incentivizes competition on a global stage.[16] While the FTC argued that the Tapestry and Capri merger would harm consumers by reducing access to affordable handbags, Tapestry contended that the merger would benefit consumers by improving product offerings and expand reach.[17] In a statement following Judge Rochon’s order, Tapestry commented that the luxury handbag industry is “intensely competitive and dynamic, constantly expanding, and highly fragmented among both established players and new entrants.”[18] Finally, Tapestry noted that their business model faces pressure from both lower and higher-priced products, and firmly believes the transaction is both pro-competition and pro-consumer.[19] Howard Hogan, chair of the fashion, retail, and consumer practice at Gibson Dunn also commented on the FTC’s decision to sue, stating that the decision is “surprising” because “there’s no shortage of competition for fashion, apparel, and accessories.”[20] In contrast to President Biden’s fight against monopolies, Trump campaigned on a pro-business agenda centered on deregulation.
Following President Trump’s election victory over Vice President Kamala Harris, the stocks of several companies anticipated to engage in M&A deals surged, driven by expectations of successful completions.[21] Tapestry is currently up 13% since last week’s election results, and Capri’s stock gained 10% in the days following the result but has since dropped to a net gain of 1% on the week Goldman Sachs chief U.S. equity strategist, David Kostin, wrote that “[t]he regulatory posture of the Federal Trade Commission and the Department of Justice Antitrust Division that during the past four years challenged many proposed business combinations will likely be more relaxed under the incoming administration.”[22] Goldman Sachs also forecasts a 20% rise in M&A activity for 2025.[23] With dealmaking on the horizon, one looming question remains: who will be the FTC’s Chair?
President Trump’s base has embraced some traditionally Democratic anti-free market ideas, with future Vice President J.D. Vance exemplifying this shift.[24] Vance has openly supported current FTC Chair Lina Khan’s position against Big Tech, and has even praised Khan, noting her effective work within the Biden administration.[25] Given this backdrop, the incoming Trump administration’s approach to antitrust regulation will be closely watched. With an anticipated new FTC chair on the way and shift towards deregulation, businesses may find a more favorable environment for dealmaking. But, the balance between fostering competition and promoting growth will be a critical issue to navigate. As the new administration takes office, the future of antitrust enforcement and its impact on the economy will be a key area of focus for policymakers, businesses, and consumers alike.
[1] Ananya Mariam Rajest, Capri tumbles 46% after US court blocks $8.5 bln merger with Tapestry, Reuters (Oct. 25, 2024, 2:20 PM), https://www.reuters.com/business/retail-consumer/capri-shares-tumble-46-after-us-court-blocks-85-bln-merger-with-tapestry-2024-10-25/.
[2] Id.
[3] See id.
[4] Abigail Summerville et al., US sues to block merger of Coach and Michael Kors handbag makers, Reuters (Apr. 23, 2024 4:33 AM), https://www.reuters.com/markets/deals/us-ftc-sues-block-85-bln-takeover-capri-by-tapestry-2024-04-22/.
[5] See infra note 6.
[6] FTC, DOJ Issue Fiscal 2022 Hart-Scott-Rodino Notification Report, Federal Trade Commission (Dec. 21, 2023), https://www.ftc.gov/news-events/news/press-releases/2023/12/ftc-doj-issue-fiscal-year-2022-hart-scott-rodino-notification-report.
[7] David R. Brenneman et. al., New Legislation Dramatically Increases Funding to US Antitrust Agencies Over Five Years, Ensuring Aggressive Enforcement, Morgan Lewis, (Jan. 10, 2023), https://www.morganlewis.com/pubs/2023/01/new-legislation-dramatically-increases-funding-to-us-antitrust-agencies-over-five-years-ensuring-aggressive-enforcement.
[8] Id.
[9] Id.
[10] Mission:, Federal Trade Commission, https://www.ftc.gov/about-ftc/mission.
[11] See Aurelien Portuese, Biden Antitrust: The Paradox of the New Antitrust Populism, 29 GEO. Mason L. Rev. 1087, (2022); see also Justin Wise & Mahira Dayal, Failed Deals Climb as Antitrust Enforcers Push Aggressive Agenda, Bloomberg Law (Sept. 23, 2024, 4:45 AM), https://news.bloomberglaw.com/privacy-and-data-security/failed-deals-climb-as-antitrust-enforcers-push-aggressive-agenda.
[12] Americans Deserve a Transparent and Accountable FTC, U.S. Chamber of Commerce, https://www.uschamber.com/major-initiative/ftc-regulatory-overreach.
[13] Aurelien Portuese, Biden Antitrust: The Paradox of the New Antitrust Populism, 29 GEO. Mason L. Rev. 1087, (2022).
[14] J. Mark Gidley et al., U.S. Antitrust Agencies Finalize Changes to the U.S. Merger Guidelines – Formalizing a Shift Toward a Very Aggressive Merger Enforcement Policy, White & Case, (Dec. 19, 2023), https://www.whitecase.com/insight-alert/us-antitrust-agencies-finalize-changes-us-merger-guidelines-formalizing-shift-toward.
[15] Id.
[16] Portuese, supra note 13.
[17] Gabrielle Fonrouge, Jacob Pramuk, Judge blocks Coach owner Tapestry’s proposed acquisition of Michael Kors parent Capri, CNBC (Oct. 25, 2024, 8:46 AM), https://www.cnbc.com/2024/10/24/judge-blocks-coach-owner-tapestrys-proposed-acquisition-of-michael-kors-owner-capri.html.
[18] Id.
[19] Id.
[20] Rajest, supra note 1.
[21] Paulo Confino, Wall Street is foaming at the mouth with all the possible mergers and acquitions that may go through with Trump as president, Fortune (Nov. 7, 2024, 1:55 PM), https://fortune.com/2024/11/07/donald-trump-ma-mergers-acquisition-doj-ftc-lina-khan/.
[22] Id.
[23] Id.
[24] Elizabeth Nolan Brown, Good Riddance, Lina Khan, reason (Nov. 7, 2024, 11:31 AM), https://reason.com/2024/11/07/good-riddance-lina-khan/.
[25] Id.
