DealLawyers.com Blog

As reported by the New York Times, a New York federal court granted a preliminary injunction last week preventing the $8.5 billion acquisition of Capri Holdings (owner of Versace and Michael Kors) by Tapestry (the parent company of Coach and Kate Spade) from moving forward while the FTC investigates the deal in its administrative court. This Troutman Pepper alert says that the decision shows that some courts will accept “the more pro-enforcement and interventionist guidance” in the 2023 Merger Guidelines.

The FTC’s complaint cited multiple theories from the 2023 Merger Guidelines, including:

– Serial acquisitions, alleging that Tapestry is engaged in an anticompetitive pattern, which it intends to continue, having acquired two other handbag brands in 2015 and 2017.

– Focus on a narrow/niche product market since the complaint alleged that the companies compete “most fiercely” in the “accessible luxury” handbags market.

– That the merger will limit employees’ wages and benefits because the companies will not be competing in the labor market.

The decision largely turned on the court’s acceptance of the FTC’s argument that the product market be defined as “accessible luxury” handbags — separate and distinct from “mass market” and “true luxury” handbags based on materials and craftsmanship, manufacturing location, and price and pricing methodology. Judge Rochon swiftly rejected the suggestion that the price of handbags isn’t a suitable subject for an antitrust case.

The alert has these conclusions for deal-makers:

– The current nature of the competition between the parties should not be underestimated. Even if other competitors are also important, if the parties’ internal documents and external statements arguably focus on each other, the potential for loss of competition and the parties’ risks will likely be amplified.

– At least some courts will embrace the 2023 Merger Guidelines’ more aggressive approach to merger analysis.

– Niche submarkets within broad markets, including those with many competitors, will not get a pass from the agencies. Parties should consider a more in-depth review into their products’ characteristics and how they might be used to narrow the relevant product market.

– The merging parties’ statements to the investment community and in internal documents should be taken into account in any review of potential market definitions.

– The FTC’s focus is not limited to transactions involving kitchen table items and hot-button industries, such as health care, agriculture, or tech, and the 2023 Merger Guidelines apply equally to all industries.

– Even where parties already separately operate brands or divisions, the parties’ assurances that the brands will continue to compete post-closing are not likely to save a transaction otherwise seen as problematic.

– The agencies will likely continue to file cases in jurisdictions they believe are willing to embrace the 2023 Merger Guidelines and go beyond the majority of existing precedent.

– Meredith Ervine