Capri Holdings and Tapestry Inc. are facing a securities class action lawsuit following the implosion of their proposed $8.5 billion merger. In a complaint lodged with the U.S. District Court for the District of Delaware in December, Capri shareholder David Hurwitz alleges that the companies and some of their top executives – namely, Capri chairman and CEO John Idol, Capri CFO Thomas Edwards, Tapestry CEO Joanne Crevoiserat, and Tapestry CFO and COO Scott Roe – misled shareholders regarding the regulatory risks surrounding the deal, which was ultimately blocked by the Federal Trade Commission (“FTC”), prompting the two fashion groups to call it quits.
A Bit of Background: The ongoing lawsuit stems from Tapestry’s failed bid to acquire Capri Holdings, a move intended to consolidate a significant share of the so-called “accessible luxury” handbag market. The acquisition, which was first announced in August 2023, was touted by both companies as an opportunity to create an American fashion conglomerate that would situate the Coach, Kate Spade, Michael Kors, Versace, and Jimmy Choo brands under one ownership umbrella.
The FTC swiftly raised antitrust concerns, filing a lawsuit in April 2024 to block the merger on the grounds that it would eliminate direct competition between the two companies’ brands in the accessible luxury handbag space. Despite public assurances from Capri and Tapestry executives that the deal was pro-competitive and pro-consumer, a federal court in New York granted the FTC’s bid for a preliminary injunction in October 2024, effectively torpedoing the transaction and prompting Capri’s NYSE-traded stock to plummet.
Failure to Disclose Red Flags
In his complaint, Hurwitz alleges that Capri, Tapestry, and their executives (the “defendants”) intentionally concealed material information about the obvious antitrust risks that could stand in the way of the merger. For example, Hurwitz cited internal documents presented in the FTC’s case, including company emails and presentations that reportedly demonstrate that Tapestry and Capri’s executives viewed the merger as a way “to consolidate prevalent brands within the accessible luxury handbag market … to reduce competition, increase prices, improve profit margins, and reduce consumer choice within that market.”
Moreover, the same documentation allegedly confirms that the defendants viewed their Michael Kors, Coach, and Kate Spade brands as fierce competitors in the accessible luxury market, a segment that they consider to be distinct from (and thus, not in competition with) pure luxury goods and mass-market products, which should have raised red flags (and prompted disclosures) from an anti-competition perspective, Hurwitz claims.
Against this background, Hurwitz maintains that the defendants knew that “the risk of adverse regulatory actions and/or the Capri acquisition being blocked was materially higher” than they represented to the public. And in order to paint an overly optimistic picture of the deal’s likelihood of securing regulatory approval and maintain their stock prices, he claims that the companies selectively omitted or misrepresented such internal assessments in their public disclosures.
Following the federal court’s decision to block the deal, Capri’s stock price fell from $41.60 to $21.26 per share, wiping out billions in shareholder value, per Hurwitz. He claims that this decline was the direct result of the defendants’ misleading statements and omissions about the likelihood of the merger coming into fruition, which had artificially inflated Capri’s stock price throughout the class period (August 10, 2023, and October 24, 2024). Hurwitz says that he and other Capri shareholders suffered significant financial losses due to the company’s failure to fully disclose the material risks associated with the acquisition, and as a result, he is seeking monetary damages, as well as a certification of his proposed class action to include all investors who purchased Capri stock or sold Capri shares between August 10, 2023, and October 24, 2024.
What’s Next?
While Capri and Tapestry have yet responded to the lawsuit, the case is likely to be watched closely by legal and financial analysts, as it raises broader questions about corporate transparency in mergers and acquisitions. More broadly, the failed Capri-Tapestry deal serves as a cautionary tale for the luxury fashion industry of the increasing regulatory scrutiny facing consolidation efforts in the sector.
The case is Hurwitz v. Capri Holdings Limited, 1:24-cv-01410 (D. Del.).
