Europe has historically dominated the luxury fashion industry for decades thanks to the creation of some of the world's most renowned high-end brands, such as Chanel, Dior, Gucci, and Louis Vuitton, to name a few.
However, Tapestry and Capri, two American luxury companies, refused to fall behind their European counterparts, devising a plan to take over the luxury fashion world.
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The companies, which own some of the industry's most popular luxury fashion brands, agreed to join together in August 2023 in an $8.5 billion deal, merging the two luxury fashion houses.
The news rocked the fashion world because of each companies dominance in the handbag category.
Tapestry owns renowned brands like Coach, Kate Spade, and Stuart Weitzman, and Capri owns esteemed brands, including Versace, Jimmy Choo, and Michael Kors.
Related: Two major fashion handbag brands were just dealt a big blow by the U.S. government
If the deal between Tapestry and Capri were to come to fruition, this multi-billion dollar merger would've created one of the largest luxury fashion houses in the world, putting the U.S. at the forefront of luxury fashion and potentially taking over Europe's first-place spot.
Tapestry and Capri merger deal dealt a blow
Although this merger could've been a historic moment for American luxury, the Federal Trade Commission (FTC) filed an antitrust lawsuit to block the move as soon as it learned of this fashion takeover plan.
In April, the FTC successfully passed a complaint against both companies to seek a temporary halt on the merger in favor of the public interest.
It argued that the law would be violated as the deal would eliminate brand competition and reduce consumers' accessibility to the affordable luxury handbag market. It would also negatively affect the companies' workforce by removing employee competition, reducing wages and workplace benefits.
Six months later, a verdict was reached, and the FTC completely stopped the merger.
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However, after hearing the disappointing news, Tapestry and Capri announced a plan for appeal. They argued that the facts regarding the FTC's complaints were inaccurate and that the merger didn't infringe on competitive practices but rather benefitted consumers and fashion houses equally.
Tapestry and Capri report disappointing earnings
On Nov. 7, Tapestry TPR and Capri CPRI separately published their latest earnings reports, and while both companies saw declines, it was particularly bad for Capri Holdings.
According to Tapestry's fiscal 2025 first-quarter earnings report, net sales were flat at $1.51 billion compared to the same time last year, with earnings per share (EPS) of $0.79, a decrease from $0.84 in Q1 of 2024.
However, according to Capri's second-quarter results for fiscal 2025, total revenues decreased by 16.4% to $1.07 billion compared to the same time last year, with EPS of $0.65, a huge decline from $1.13 in Q2 of 2024.
Tapestry backs out on its deal to acquire Capri
Tapestry and Capri had been persistent in their efforts to appeal the government's decision to stop the merger. However, Tapestry has suddenly decided to change its mind.
On Thursday, it announced it would abandon its plans to appeal the government's unfavorable decision, effectively ending its merger agreement.
According to the press release, Tapestry and Capri mutually agreed to terminate the merger agreement in the best interest of both businesses, as they are uncertain that the legal proceedings will be resolved before Feb. 10, 2025.
"Building on our successful first quarter, we will move with speed and boldness to accelerate growth for our organic business. Tapestry remains in a position of strength, with distinctive brands, an agile platform, passionate teams, and robust cash flow," said Tapestry CEO Joanne Crevoiserat.
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In the press release, Tapestry's CFO and COO, Scott Roe, also announced the approval of an additional $2 billion share repurchase program to strengthen the company's growth.
"We are confident in our compelling long-term organic growth agenda and the opportunity to deliver enhanced value to all stakeholders for years to come,” said Roe.
Additionally, Tapestry said it doesn't plan to make any acquisitions in the near future, as it's focusing on growing its current brands.
After announcing the termination of the merger agreement on Thursday, Tapestry's stock skyrocketed nearly 12%, while Capri's jumped over 6%. This proved that the termination of this complicated merger might have been the limelight that both companies needed to survive this ongoing luxury slump.
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