Judge blocks Coach owner Tapestry's proposed acquisition of Michael Kors parent Capri

A federal judge blocked Tapestry's acquisition of Capri on Thursday following a brief trial last month in New York.

In her order, Judge Jennifer Rochon granted the Federal Trade Commission's motion for a preliminary injunction to block the proposed merger, which would marry America's two largest luxury houses and put six fashion brands under one company: Tapestry's Coach, Kate Spade and Stuart Weitzman with Capri's Versace, Jimmy Choo and Michael Kors. 

Tapestry's stock surged 10% after the order was filed while Capri's plunged about 50%.

In a statement, Tapestry said it plans to appeal the order, "consistent with our obligations under the merger agreement."

"Today's decision granting the FTC's request for a preliminary injunction is disappointing and, we believe, incorrect on the law and the facts. Tapestry and Capri operate in an industry that is intensely competitive and dynamic, constantly expanding, and highly fragmented among both established players and new entrants," the company said. "We face competitive pressures from both lower- and higher-priced products and continue to believe this transaction is pro-competitive and pro-consumer."

Under the terms of the merger agreement, Tapestry agreed to reimburse Capri for expenses incurred in connection with the transaction if it fails to be approved, according to a securities filing. If either Tapestry or Capri walks away from the deal because it didn't receive regulatory approval or, a government issued a permanent, non-appealable injunction against it, Tapestry agreed to pay Capri between $30 million and $50 million, the filing said.

Capri, on the other hand, has agreed to pay a breakup fee of $240 million if it decides to terminate the proposed merger.

Rochon's reasoning