Capri and Tapestry abandon plans to merge due to regulatory obstacles.

• Tapestry and Capri have mutually agreed to call of their merger.
• The Federal Trade Commission blocked the proposed merger between the parent companies of Coach and Michael Kors.
• In October, Tapestry said it would appeal the ruling.

The Federal Trade Commission successfully sued to block the merger of two companies on Thursday, causing them to call it off.

The two U.S.-based luxury houses "mutually agreed" that terminating the merger was in their best interests as they were unlikely to get regulatory approval before the deal was set to expire in February, according to a news release.

"The cancellation of the merger agreement has led us to concentrate on the future of Capri and our three renowned luxury homes," stated John Idol, CEO of Capri, in a statement. "I am optimistic about Capri's long-term growth prospects due to several factors."

The acquisition of $8.5 billion, originally announced in August 2023, would have united America's two largest luxury houses and placed six fashion brands under one company: Tapestry's Coach, Kate Spade, and Stuart Weitzman with Capri's Versace, Jimmy Choo, and Michael Kors.

The FTC sued to prevent the merger in April, arguing that it would harm consumers and decrease benefits for employees. A federal judge recently ruled in the FTC's favor and granted a preliminary injunction to block the proposed deal.

At the time, Tapestry said it would appeal the ruling.

Tapestry announced on Thursday that it does not require Capri to continue expanding and will utilize the freed-up funds to authorize an additional $2 billion share repurchase.

CEO Joanne Crevoiserat stated that our decision today clarifies our forward strategy, as we have always had multiple paths to growth. We will accelerate growth for our organic business by building on our successful first quarter and moving with speed and boldness.

Tapestry intends to finance its stock repurchase using a combination of cash reserves and borrowing.

Although the company stated on Thursday that no break fee would be charged for the transaction, the merger agreement stipulated that Tapestry would compensate Capri for its expenses if the deal did not receive regulatory approval. Tapestry will now reimburse Capri approximately $45 million.

Wall Street analysts have started to question the merger between Tapestry and Capri, citing the lengthy approval process and Capri's declining business as reasons for their skepticism.

On Thursday, Tapestry's stock surged about 10% in premarket trading while Capri's shares plunged around 50%.

At 11 a.m. ET, Capri will hold a call with analysts to discuss its plan to revive its flagging brand, Michael Kors, and regain growth.

"Our Company's recent performance over the past 18 months has prompted us to implement strategic initiatives to revive growth in our luxury houses, as stated by Idol in a news release. Our focus across Versace, Jimmy Choo, and Michael Kors is on enhancing brand desirability through captivating communication, enthralling products, and an omni-channel consumer experience. Although our strategies are customized for each brand, our ultimate objectives remain consistent."