Shares of Michael Kors owner Capri slumped nearly 46% in premarket trading today after a US judge blocked its pending $8.5 billion merger with handbag maker Tapestry.
Tapestry agreed to buy Capri last year to create a US luxury giant that could compete better with larger European rivals by bringing brands Coach, Kate Spade, Versace, Jimmy Choo and Michael Kors under one roof.
The Federal Trade Commission (FTC) sued to block the deal in April, saying it would eliminate "direct head-to-head competition" between the top two US handbag makers.
Should the deal fall through, "Capri could potentially seek another suitor" as it grapples with execution missteps at Michael Kors, said Dana Telsey of Telsey Advisory Group.
Tapestry's shares rose nearly 13%. Analysts said the deal would have been an added risk to the Coach parent even though it was well-positioned to revive Capri.
During an eight-day trial in September, the FTC argued the deal would create a massive company with the power to unfairly raise prices.
US District Judge Jennifer Rochon rejected the companies' defense, including their argument that handbags are non-essential items and consumers can control the prices by not buying them if they become too expensive.
Tapestry believes the ruling was incorrect and plans to appeal, it said.
