(Bloomberg) -- At the federal antitrust trial that will spell the fate of the $8.5 billion deal to marry the Coach and Kate Spade brands with Versace and Michael Kors, there’s the money and then there’s the merch.
The exhibits in US District Judge Jennifer Rochon’s Manhattan courtroom Tuesday included a “colorful, joyful, feminine” green and white Kate Spade tote priced at $279, described in glowing terms by the CEO of the company that markets it — as dozens of lawyers and merger arbitragers looked on.
“We call it our Emily in Paris bag,” after its appearance in the Netflix romantic comedy, Tapestry Inc. Chief Executive Officer Joanne Crevoiserat told the judge and the crowd in the public gallery.
Crevoiserat was testifying on the second day of an extended hearing, or mini-trial, to determine whether US antitrust enforcers will win an order freezing Tapestry’s acquisition of Capri Holdings Ltd., effectively killing the deal. The Federal Trade Commission has sued to block it as anticompetitive, in the agency’s first enforcement action in the fashion sector under Chair Lina Khan.
The FTC claims that putting all of Tapestry’s and Capri’s brands under one roof will mean higher prices for middle- and lower-income customers. The companies say the market offers consumers a multitude of choices and that the deal will help revive Capri’s fading Michael Kors brand without suppressing competition.
The Wall Street crowd, which includes the arbs who bet on whether a deal will live or die, was watching and listening closely for any clues to whether Rochon will grant the preliminary injunction the FTC is seeking that would freeze, and doom, the transaction.
But there were also a lot of cool handbags to check out. As the trial began Monday, a rack of them was rolled into court as evidence.
To contrast with the Kate Spade offering and show that the market invites competition at all price points, Crevoiserat held up a stylish $1,095 brown leather Coach Rogue handbag.
The battle over whether the deal would suppress competition continued on Wednesday, when economist Loren Smith, an expert witness for the FTC, testified that the combined company would have more of an incentive to raise prices than to boost quality or innovate.
As the two sides worked to define the market at issue in the trial, Smith was followed by Suwon Yang, head of merchandising for leather goods and accessories at Chanel Ltd., which sells handbags that average around $5,000 and competes with such players as LVMH Moët Hennessy Louis Vuitton SE and Hermes International. At the lower end was Rebecca Minkoff, with bags for less than $500, whose Griffin Guez took the stand.
Capri’s shares, which have been rising since the trial began, closed up 7% at $40.46 on Wednesday, further narrowing the gap with Tapestry’s $57-a-share takeover bid, as arbs and other investors appear to read the hearing as going the companies’ way.
The trial has had its laugh lines. On Tuesday, as Crevoiserat sought to illustrate that customers have “hundreds” of handbag brands to choose from, she cited Lululemon Athletica Inc., the athletic-wear company that recently turned a cross-body nylon belt bag into a $600 million business.
“What pains me,” she testified, “is my daughter carries one.”
--With assistance from Jeannette Neumann.
(Updates with expert testimony and latest stock action below last photo.)
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