Hold Everything

On Thursday evening, news broke that US District Judge Jennifer Rochon blocked Tapestry's (TPR) $8.5B acquisition of Capri Holdings (CPRI). Judge Rochon granted the Federal Trade Commission's motion for a preliminary injunction to block the deal. The FTC had sued to block this merger, on the grounds that if this combination were allowed to proceed, that would eliminate competition between Coach, Kate Spade, and Michael Kors as all of these brands focus on "accessible luxury."

For those now lost, Capri is the company formerly known as Michael Kors Holdings and includes the Jimmy Choo and Versace brands as well. Tapestry, formerly known as Coach, is the parent company of Coach, Kate Spade and Stuart Weitzman.

The two companies make the case that the FTC's argument is not relevant to the luxury market for handbags as they both also compete with hundreds of other handbag manufacturers from overseas and that new players enter this market on a regular basis.

In response to the news, TPR is trading up more than 14%, on Friday and is trading with a $50 handle overnight. CPRI is down more than 47% overnight, trading with a $21 handle. The takeout price for this deal is or was $57, but the market must have seen this coming, as the stock had closed at $41.60 on Thursday afternoon.

I am long CPRI (purchased overnight)