Shares of Tapestry Inc. (TPR) surged 14.32% during mid-day trading following a U.S. judge’s decision to block the company’s proposed $8.5 billion acquisition of Capri Holdings Ltd. (CPRI).
Tapestry stock climbed to an intraday high of $51.59 before settling at $50.84, up from its previous close of $44.47.
The surge places TPR just 1.44% below its 52-week high and 95.61% above its 52-week low of $25.99. Trading volume spiked to 10,024,467 shares, more than 393% above its average daily volume.
U.S. District Judge Jennifer Rochon’s ruling, a significant victory for the Federal Trade Commission (FTC), comes after an eight-day trial in New York.
The court sided with the FTC, which argued that the merger would reduce competition between two of the largest U.S. handbag makers, potentially leading to unfair price increases for consumers.
Tapestry had hoped to combine its brands, including Coach, Kate Spade, and Stuart Weitzman, with Capri’s portfolio of Versace, Jimmy Choo, and Michael Kors to strengthen its position against European luxury competitors like Gucci.
However, Judge Rochon rejected Tapestry’s defense that the deal was pro-competitive, noting that handbags are important to many consumers for both fashion and functionality.
The court ruled that the merger would ultimately harm competition in the affordable luxury handbag market.
Despite the setback, Tapestry remains optimistic. The company announced its intention to appeal the decision, stating,
“We believe this ruling is incorrect. We face competitive pressures from both lower- and higher-priced products and continue to believe this transaction is pro-competitive and pro-consumer.”
The merger block comes at a critical time for both companies. While Tapestry shares soared by 14%, Capri shares plummeted by 47% in after-hours trading.
Analysts had viewed the deal as a key move for Tapestry to diversify its portfolio and improve its competitive positioning in the global luxury market.
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Market Reaction and Analyst Outlook
Despite the FTC ruling, analysts remain cautiously optimistic about Tapestry’s growth potential. Based on one-year price targets from 17 analysts, the average target price for Tapestry is $49.88, with estimates ranging from a low of $40.00 to a high of $66.00.
The stock’s recent surge puts it just above the average target but implies a slight downside of 1.88% from the current price of $50.84.
Meanwhile, Tapestry’s consensus brokerage recommendation from 20 firms remains at 2.0, indicating an “Outperform” status.
On a rating scale from 1 (Strong Buy) to 5 (Sell), analysts largely view the stock as a solid strong buy despite the legal setback.
Tapestry’s Next Moves
As Tapestry navigates its legal challenge, it is expected to continue focusing on its core brands and operational efficiencies.
The company’s emphasis on expanding its digital footprint and strengthening its position in the affordable luxury market will be crucial as it seeks to maintain competitive momentum.
“We remain committed to driving long-term value for our shareholders through a combination of operational excellence, strategic brand management, and disciplined capital allocation,”
Scott Roe, Tapestry’s CFO
Looking forward, Tapestry faces the dual challenge of addressing competition from both high-end luxury and lower-priced competitors, while also managing potential impacts from the FTC ruling.
While the company’s growth outlook remains strong, investors will be closely monitoring any developments related to the blocked merger and its appeal process.
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