By Savyata Mishra and Ananya Mariam Rajesh
(Reuters) -Tapestry is terminating its $8.5 billion deal to buy Michael Kors owner Capri following a legal hurdle, the companies said on Thursday, ending their effort to create a U.S. luxury giant to compete with major European players.
The deal would have brought six brands under one roof: Tapestry (NYSE:)’s Coach , Kate Spade and Stuart Weitzman; and Capri’s Versace, Jimmy Choo and Michael Kors. But regulators sued to block the deal earlier this year, citing anti-competition concerns.
Capri shares were down nearly 6% in premarket trading on Thursday. They have lost nearly half of their value since a U.S. judge blocked the deal late last month.
Tapestry’s stock, on the other hand, was up 8%, as the company also announced a $2 billion share buyback.
The merger was blocked last month after the U.S. Federal Trade Commission (FTC) argued that it would eliminate head-to-head competition between the top two handbag makers and create a massive company with the power to unfairly raise prices.
The companies said on Thursday they mutually agreed that ending the merger agreement was in their best interest, as the outcome of the legal process was uncertain and unlikely to be resolved by Feb. 10, the deadline that was set for the deal.
Some analysts had anticipated the deal to fall through despite President-elect Donald Trump’s lenient stance on antitrust. Tapestry CFO Scott Roe told Reuters last week the election had no bearing on the judicial process.
Last week, Tapestry said it had halted its merger plans as it appealed the U.S. judge’s decision.
“The FTC could have been doing Tapestry a favor, giving them a chance to rethink the deal,” said Brian Jacobsen, chief economist at Annex Wealth Management.
Capri has reported several straight quarters of sales decline since the deal was announced in August last year.
CEO John Idol said on Thursday that Capri was laying out several plans including selling products that appeal to a broader consumer base, while also reducing the number of Michael Kors stores to 650 over time.
Tapestry CEO Joanne Crevoiserat said the company plans to accelerate growth for its organic business and had “significant runway ahead.” The company also raised its 2025 profit forecast last week.
Coach’s Tabby handbags have gained traction among younger consumers, helping Tapestry to post gross margin growth for eight straight quarters.
Tapestry said it does not expect any acquisitions in the near term and has agreed to reimburse Capri’s expenses of about $45 million, incurred in connection with the merger.
