May 16, 2024

Antitrust: New Merger Guidelines Feature Prominently in Recent FTC Challenge

Last month, the FTC filed an administrative complaint seeking to block Tapestry Inc.’s $8.5 billion proposed acquisition of Capri Holdings. This fight is all about purses, folks, because the FTC says that the deal would eliminate competition between Capri’s Coach & Kate Spade brands and Tapestry’s Michael Kors. The FTC alleges that the deal would significantly increase concentration in the “accessible luxury” handbag market and permit Tapestry to dominate that market.

These sound like pretty conventional antitrust concerns, but this excerpt from a recent Freshfields’ blog points out that the FTC has managed to work in some of the more novel concerns laid out in the 2023 Merger Guidelines into its complaint:

In addition to the horizontal overlap between Tapestry and Capri, the FTC alleges other theories of harm advanced by the 2023 Guidelines:

Labor Market Harms: The FTC alleges that the transaction would not only lead to a reduction of competition between the parties for sales of handbags, but also in the purchase of labor. The Guidelines specifically acknowledge that when a merger combines competing buyers of labor, it can result in a lessening of competition that may slow wage growth and worsen conditions for workers. This is particularly the case in labor markets that are highly specialized and have high switching costs.

The FTC has similarly brought labor market harms as an additional theory of harm in prior merger challenges—for example, in Kroger / Albertsons, the FTC alleged potential harm to a subset of employees, particularly by weakening union leverage. However, in its challenge to Tapestry/Capri, the FTC does not focus on any particular category of labor (e.g., sales) or highly specialized labor. Instead, the complaint alleges that the combination of the parties could harm competition in light of their combined “more than 33,000 employees worldwide . . . in a variety of locations and functions.”

Serial Acquisitions: The FTC harkens to another part of the Merger Guidelines scrutinizing serial acquisitions, arguing that the deal “builds on a deliberative, decade-long M&A strategy by Tapestry. . .to achieve its goal to become the major American fashion conglomerate” through successive acquisitions of fashion brands. Citing to its documents, the FTC noted that it has no plans to slow its acquisition strategy.

The blog highlights the fact that this is the latest in a series of cases in which the FTC has trotted out some of novel theories of harm in its 2023 Merger Guidelines. It says it is unclear if the FTC would’ve been willing to bring these claims on a standalone basis to block the deal, but the case is another signal that companies should anticipate that the FTC will throw new theories of harm into the mix, particularly when it challenges deals between competitors.

By the way, I was thinking that if Kors, Kate Spade & Coach handbags form the “accessible luxury” market, maybe the knockoffs those guys camped out on Broadway around Times Square peddle should be classified as the “accessible larceny” market.

John Jenkins