Capri stock fell 46% after a judge blocked an $8.5 billion textile deal

Capri Holdings (CPRI), the parent company of Michael Kors and Jimmy Choo, saw its shares fall nearly 45% in after-hours trading on Thursday after a US judge blocked its pending $8.5 billion merger with Coach owner Tapestry.

In a lawsuit obtained by Yahoo Finance, US District Judge Jennifer Rochon ruled that “antitrust has become a fad,” arguing that a merger between the two fashion powerhouses would “significantly reduce competition in the accessible luxury handbag market.”

Tapestry and Capri announced their proposed merger last year. This combination would have brought six high-profile fashion brands under one roof: Tapestry's Coach, Stuart Weitzman, and Kate Spade with Capri's Versace, Jimmy Choo, and Michael Kors.

Tapestry shares moved in the opposite direction to Capri in the wake of the news, rising nearly 13%.

In a statement issued Thursday evening, Tapestry said it plans to appeal the decision, adding: “Tapestry and Capri operate in an industry that is highly competitive and dynamic, constantly expanding, and highly fragmented between established players and new entrants.

“We face competitive pressures from both low- and high-priced products, and we continue to believe this deal is pro-competitive and pro-consumer.”

Federal Trade Commission It has moved to a block acquisition in April, seeking a preliminary injunction to stop the deal. The order was granted by Rochon on Thursday.

At the time, the agency argued that the merger would “[threaten] To deprive consumers of competition for affordable handbags, while hourly workers will lose out on the benefits of higher wages and more favorable working conditions.

Tapestry has resisted these claims, saying the merger is necessary in order to compete against dominant European players such as Gucci.

The ruling blocks the merger while the FTC moves forward with its proceedings, but all parties will still have an opportunity to argue their case before the FTC.

Before Thursday's ruling, Pauline Brown, former head of North America at LVMH, which owns fashion brands such as Louis Vuitton and Dior, told Yahoo Finance that the FTC would face a “major hurdle” in presenting its case.

“The most difficult part of their legal argument is that there is a natural market … for what they call affordable luxury handbags,” she said at the time. “The truth is, I think it's a spectrum.”

She added that it is a “weak argument” to say that consumers will be harmed by higher prices because “customers, if they are happy, will still come for the right price, for the right designs. If they are not, they will go to another player.”

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