It seems like every merger these days is being targeted for shutdown by the Federal Trade Commission (FTC). And it proved no different with Tapestry (TPR), whose planned merger with Capri Holdings (CPRI) is under attack. Investors took the news well, though, as shares were up over 3% in Monday afternoon’s trading.
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The FTC’s reason for fighting back against the merger is pretty much the same as it ever is, though in this case, it sounds just a little more ludicrous: should Tapestry and Capri be allowed to merge, the FTC asserts, the market for “accessible luxury” will see much less competition. Yes, the FTC is now to a point where it is concerned that people might have a tougher time finding affordable luxury handbags.
The FTC further asserts that should Tapestry be allowed to merge, it would have a dominant share of that particular market. Tapestry, meanwhile, points out that “accessible luxury” is a notional concept and that the U.S. handbag market is “…highly fragmented and competitive with low barriers to entry and fickle consumer tastes.” In support of this, Tapestry is planning to call in Macy’s (M) former CEO Jeff Gennette to testify on the massive availability of handbags and how the Tapestry merger would, thereby, have little impact.
Stuart Weitzman Is Shown the Door
Meanwhile, perhaps as a means to soothe the FTC, reports noted that Tapestry is closing in on a deal for its Stuart Weitzman brand. It has actually reached a point, reports note, where current brand chief executive officer Giorgio Sarne is poised to depart the company in October.
Though it is questionable just how far that will go to mollify the FTC, it would at least demonstrate that Tapestry is cognizant of the potential issues involved in merging Tapestry and Capri. It would also help deliver some extra cash to soothe shareholders, who are about to watch $8.5 billion go out the door to pick up Capri in the first place.
Is Tapestry a Good Stock to Buy?
Turning to Wall Street, analysts have a Strong Buy consensus rating on TPR stock based on eight Buys and one Hold assigned in the past three months, as indicated by the graphic below. After a 34.81% rally in its share price over the past year, the average TPR price target of $50.50 per share implies 20.55% upside potential.
