“This deal threatens to deprive consumers of the competition for affordable handbags” Henry Liu Director, Bureau of Competition, Federal Trade Commission
On Monday (Apr 22, 2024), the FTC moved to block the merger of Tapestry and Capri.
The FTC’s stated purpose is enable more competition in the accessible luxury handbag market (are we seriously worried about this?). They are also worried that the combined entity will reduce wages and benefits for employees (who knew there were so few retail workers in America that this could be a problem?)
It’s hard to know what to make of the FTC’s move to block the merger of Tapestry and Capri, especially when the public version of the complaint looks like this:
My real complaint here is that if we want to support the growth of American brands and retail (and thus increase choice and pricing options to consumers), we need to find ways to bring more capital to these companies.
The FTC is doing the opposite. Equity capital ultimately needs exits. Investors invest when they believe they will see their investment again, plus profit, in a reasonable timeframe. There are basically two ways for a company to exit - going public or being acquired. Unsurprisingly, the vast majority of exits are acquisitions.
What is most important here is not the legal merits (or lack thereof) of the FTC’s complaint. It’s their pattern of anti-acquisition / anti-merger enforcement. Whether they win or lose in court is beside the point. The real result and maybe their true but unstated goal is to make companies think twice and put a chill in the market. This directly influences equity (and debt) providers analyses. Exits will be harder, therefore returns will be lower. And so capital providers will look to other industries besides brands and retail to invest and make the capital they do provide more expensive.
https://www.ftc.gov/system/files/ftc_gov/pdf/d09429tapestrycaprip3complaint.pdf