By Natalia Baigorri

This past year, the Biden Administration has pushed back against big business through FTC and DOJ action, including new merger guidelines and multiple lawsuits. This is a change from past FTC action of allowing mergers to proceed with structural remedies.  Now, the FTC is prioritizing blocking potentially harmful mergers.[1]  Recently, the FTC has intervened in multiple mergers that would grow already big businesses, including Kroger and Albertsons and Tapestry and Capri Holdings (“Capri”).  The FTC recently succeeded in temporarily blocking the merger between Tapestry and Capri in FTC v. Tapestry, Inc.[2] when the District Court granted a preliminary injunction to put a hold on the merger and sent the case back down to administrative proceedings.[3]  Tapestry is a major fashion conglomerate, owning Kate Spade, Coach and others, while Capri owns Michael Kors, among others.[4]  The merger would put these brands under the same roof. The District Court found that the merger would substantially lessen competition because the companies have similar products and business models.[5]

The FTC and the court applied Section 7 of the Clayton Act and Section 13(b) of the FTC Act in analyzing whether the merger is permissible.[6] The Clayton Act legislates when mergers and acquisitions may occur and works to prevent the lessening of competition.[7] To determine whether a merger may violate Section 7, Congress laid out that it requires a prediction on the impact on competition in the future.[8] The court applied the standard set by Congress under Section 7, requiring that the FTC define (1) a relevant market, and (2) show that the effect of the merger in that market is likely to be anticompetitive.[9] Under Section 13(b) of the FTC Act, the FTC is authorized to seek injunctive relief if they reasonably believe that a corporation is violating, or about to violate, a law that the FTC is entrusted to enforce.[10] Under this standard, the FTC must demonstrate a likelihood of success on the merits and a balancing of the equities.[11]

The court found that because two products between Capri and Tapestry’s subsidiaries would be “reasonably interchangeable” then the merger is likely to be anti-competitive.[12] The court acknowledged that Michael Kors and Coach are direct competitors in the affordable luxury handbag market.[13]  The court investigated the difference between “mass market”, “accessible luxury”, and “true luxury” markets in the fashion world to determine if Tapestry and Capri subsidiaries operate in the same category of markets.[14] The FTC argued that mass market and true luxury products are not “reasonably interchangeable” with accessible luxury, but the defendants disagreed and argued that there is no such thing as accessible luxury and that all handbags should be considered part of one market.[15] The court disagreed with the defendants’ argument and sided with the FTC, finding that Tapestry and Capri both operate within the “accessible luxury” space and therefore a merger between the two would weaken competition.[16]

Tapestry and Capri have appealed the District Court’s decision in the hopes of saving the merger and being able to move forward. Capri has been looking to sell their business for some time, and shortly after the District Court’s decision was released, shares in the company plummeted.[17] This decision reflects the atmosphere of intense regulation and antitrust sentiment under the Biden Administration and will likely have implications for other pending cases in other markets, such as the Kroger and Albertsons merger. While the fate of a grocery store merger may not seem to equate to that of a merger between two fashion houses, there are many similarities. Albertsons and Capri are both relying on the mergers to stay afloat.[18] Further, the FTC argues that Albertsons and Kroger’s merger will eliminate competition on prices and quality of items and harm consumers, similar to the argument made in the Tapestry case.[19]

While the FTC and the Biden Administration may see this as a win, this is a loss for business like Capri and Albertsons. The major fashion house, LVMH, has a conglomerate of hundreds of subsidiary companies worldwide.[20] These subsidiaries range from ultra-luxury brands like Luis Vuitton and Dior, to less costly brands like Marc Jacobs, that directly compete with Capri and Tapestry subsidiaries.[21] This merger would have allowed Tapestry to become a major American conglomerate to better compete with groups like LVMH. Similarly, Albertsons competes with companies like Walmart and the merger still would not overtake Walmart’s dominance over the grocery industry.[22] Further, if the merger does not go through, it is unknown whether Albertsons will survive.[23]

Big conglomerates already exist on the global market, allowing other companies to stay afloat by merging with other companies allows U.S. companies to stay competitive with big business on a global level.

[1] See John Carroll & Helen Eckert, Antitrust Under Biden: Taking a Closer Look at the Numbers, SheppardMullin, (Sept. 10, 2024) https://www.antitrustlawblog.com/2024/09/articles/election/antitrust-under-biden-taking-a-closer-look-at-the-numbers/.

[2] See No. 1:24-cv-03109, 2024 WL 4647809 (S.D.N.Y., Oct. 24, 2024).

[3] See id. at *71.

[4] See Justin Wise, Tapestry, Capri Appeal Ruling Pausing $8.5 Billion Fashion Deal, BL (Oct. 28, 2024, 5:41 PM), https://www.bloomberglaw.com/product/blaw/bloomberglawnews/bloomberg-law-news/X9O37QE4000000.

[5] Maria Raptis et al., FTC Blocks Tapestry/Capri ‘Affordable Luxury’ Deal, but Court Applies Traditional Horizontal Merger Analysis, Skadden (Nov. 1, 2024), https://www.skadden.com/insights/publications/2024/11/ftc-blocks-tapestry-capri.

[6] See FTC v. Tapestry, Inc., 2024 WL 4647809, at *5-6; Clayton Antitrust Act of 1914, 15 U.S.C. § 18.

[7] See Tapestry, Inc., 2024 WL 4647809, at *4.

[8] See id.

[9] See id. at *6.

[10] See id. at *5.

[11] See id.

[12] See id. at 6.

[13] See id. at 9.

[14] See id.

[15] See id. at 10.

[16] See id. at 10-11.

[17] Bob Van Voris et. al., Tapestry Fashion Deal in Limbo as Capri Plunges, Arbs Take Hit, BL (Oct. 25, 2024, 3:32 PM), https://www.bloomberglaw.com/product/blaw/bloomberglawnews/bloomberg-law-news/X36CI30C000000.

[18] See Anna-Louise Jackson, Is the Kroger-Albertson’s Merger Really Doomed? The Deal’s Chances, and What It Means for Consumers, Explained, FastCompany (Sept. 14, 2024), https://www.fastcompany.com/91186489/kroger-albertsons-merger-is-it-doomed-ftc-antitrust-lawsuit-explained; see also Van Voris, supra note 17.

[19] See Anna-Louise Jackson, Is the Kroger-Albertson’s Merger Really Doomed? The Deal’s Chances, and What It Means for Consumers, Explained, FastCompany (Sept. 14, 2024), https://www.fastcompany.com/91186489/kroger-albertsons-merger-is-it-doomed-ftc-antitrust-lawsuit-explained; see also See FTC v. Tapestry, Inc., 2024 WL 4647809, at *5-6.

[20] All You Need to Know About the Rise of the LVMH Group, The Am. Bus. Sch. Paris, https://www.absparis.com/lvmh-group (last visited Oct. 29, 2024).

[21] See Shemona Safaya, Tapestry, Capri Appeal FTC’s Injunction, Arguing Merger’s Competitive Benefits, GlobalData (Oct. 28, 2024) https://www.msn.com/en-us/money/companies/tapestry-capri-appeal-ftc-s-injunction-arguing-merger-s-competitive-benefits/ar-AA1t5dih.

[22] See Anna-Louise Jackson, Is the Kroger-Albertson’s Merger Really Doomed? The Deal’s Chances, and What It Means for Consumers, Explained, FastCompany (Sept. 14, 2024), https://www.fastcompany.com/91186489/kroger-albertsons-merger-is-it-doomed-ftc-antitrust-lawsuit-explained.

[23] See id.