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Tapestry CEO Joanne Crevoiserat told WWD the company was ready to fight for the potentially industry-transforming acquisition.

Tapestry’s Inc.’s mega $8.5 billion deal to buy Capri Holdings came under the microscope of regulators at the Federal Trade Commission — and they didn’t like what they saw.

In a highly unusual move for the fashion industry, the FTC sued Monday in Manhattan federal court to block the acquisition, which was first agreed to in August and would bring together Tapestry’s Coach, Kate Spade and Stuart Weitzman brands with Capri’s portfolio of Micahel Kors, Versace and Jimmy Choo.

The U.S. was the last jurisdiction that needed to sign off on the transaction.

“If allowed, the deal would eliminate direct head-to-head competition between Tapestry’s and Capri’s brands,” the FTC said in a statement. “It would also give Tapestry a dominant share of the ‘accessible luxury’ handbag market, a term coined by Tapestry to describe quality leather and craftsmanship handbags at an affordable price.”

But Tapestry’s chief executive officer Joanne Crevoiserat, speaking to WWD Monday evening from Shanghai, signaled that the company was ready to fight to save the deal.

“We’re confident in the merits of this and the benefits of this transaction, and we’re looking forward to presenting those arguments in court, and importantly working expeditiously to close the transaction this calendar year,” Crevoiserat said.

Investors have been watching closely to see if the FTC would challenge the deal after regulators made a second request for more information in November. Experts said it would be unusual for the government to step in with anti-monopoly regulations to prevent a deal in a space as specific and as discretionary as accessible luxury handbags.

But that’s exactly what happened.

“It’s not clear how they’re defining the market,” Crevoiserat said. “We look at the market the way the consumer does, and I would say that as a consumer, even if you were to walk into any department store or TJ Maxx or Google or search on Amazon or Saks.com or macys.com, at any price point, and we know consumer shopping data shows, consumers shop up and down the price spectrum. There are lots of choices.”

Instead, she said the deal would help shoppers by bringing more innovation to the market.

“Consumers are fully in charge here and if we don’t deliver innovation that they value, they have other choices,” Crevoiserat said. “There are big players in the market … and there are new entrants every day that come into the market. Some celebrity wears a bag on an evening, or a really cool Brooklyn designer creates a bag. There are no barriers to entry. So if we’re not staying on top of what consumers value and delivering innovation behind that, we’re not going to win competitively.”

The FTC has a very different take on the transaction and in its statement said, “The proposed merger threatens to deprive millions of American consumers of the benefits of Tapestry and Capri’s head-to-head competition, which includes competition on price, discounts and promotions, innovation, design, marketing and advertising.”

Henry Liu, director of the FTC’s Bureau of Competition, said Tapestry, which was built off of the Coach brand, had become “a serial acquirer” that “seeks to acquire Capri to further entrench its stronghold in the fashion industry.

“This deal threatens to deprive consumers of the competition for affordable handbags, while hourly workers stand to lose the benefits of higher wages and more favorable workplace conditions,” he said.

The FTC’s statement added: “This deal isn’t likely to be Tapestry’s last, as the acquisition of Capri will give Tapestry additional leverage to make even more acquisitions in the future, according to the complaint. As the FTC’s complaint states, documents produced by Tapestry indicate that it has no plans to stop acquisitions even after this proposed merger.”

The commission voted 5-0 to issue the complaint and to seek a preliminary injunction to stop the deal.

While Capri’s business has weakened significantly since the two sides reached the agreement, Tapestry shows no signs of backing off.

Crevoiserat said, “The FTC has fundamentally misunderstood the marketplace, the way that consumers shop in our category and the impact of this deal on labor and workers in employees in our industry…. the FTC is the only regulator challenging this deal … which I think speaks to the way other jurisdictions consider the market and consumer behavior.”

Operators say ports severely congested because of Red Sea disruptions

Container ports around the western Mediterranean are nearing full capacity, raising the risk of higher inventory costs and component shortages for Europe’s retailers and manufacturers in the latest challenge to the region’s supply chains.

Port executives said they were dealing with overflowing storage yards and waits for vessels to berth following Houthi attacks on ships in the Red Sea, which has led to a surge in traffic at Algeciras and Barcelona in Spain and Tangier-Med in Morocco.

Denmark’s Maersk recently warned customers that “yard density” at the Port of Barcelona had increased due to high capacity as the port handled far higher than normal trans-shipment movements. Maersk added that terminals in Algeciras and Tangier were also suffering.

Alonso Luque, chief executive of TTI Algeciras, one of two container terminals in Algeciras, said his facility was “quite full” and had avoided severe congestion only by restricting the amount of business it took on.

“Capacity is very limited,” he said.

Most large container shipping lines operating on the Asia-Europe route redirected traffic via the Cape of Good Hope, instead of the Suez Canal, following attacks by Iranian-backed Houthis.

The re-routings have forced shipping lines to devise new arrangements for goods going between Asia and ports in Italy, Greece and Turkey.

After coming around South Africa, many vessels are dropping off containers at ports on the western side of the Mediterranean such as Algeciras and Tangier. From there, short-distance “feeder” services ferry goods to other southern European terminals.

The disruption has arisen as critical ports have struggled to cope with the resulting sharp increases in “trans-shipment” traffic. Daniel Richards, a director at London-based maritime consultancy MSI, said delays at the ports could force some companies to hold extra stock.

“[One element] would be if you have inventory costs rising because of this,” Richards said, adding that there was also a risk to the supply of components for manufacturers.

The issues arise as terminals for handling finished cars are also suffering severe congestion, largely because of a surge in the number of vehicles being exported from Asia to Europe and North America and a slowdown in vehicle sales.

While Algeciras and Tangier-Med have published no traffic statistics this year, Barcelona recorded a 17 per cent rise in containers handled in February compared with the same month last year.

Many terminal operators expect that problems will continue for as long as services are being rerouted.

Nabil Boumezzough, president of the management board of Tangier Alliance, operator of the TC3 container terminal in Morocco, said the terminal had this year been operating consistently with its yard nearly full to capacity.

“This is challenging your efficiency and challenging your productivity and challenging how you manage your port,” Boumezzough said.

APM Terminals, the terminal-operating arm of AP Møller-Maersk, said it had been experiencing “short-term pressure” on its facilities in Barcelona, Algeciras and Tangier, although it was now seeing “significant improvements”.

However, vessel-tracking services show that vessels are regularly waiting at anchor offshore at both Algeciras and Tangier before berthing. Such waits are often a sign ports are growing congested.

Luque said shipping lines had been forced by the shortage of capacity at Algeciras and Tangier, which sit on opposite sides of the Gibraltar Strait, to go to less convenient ports farther away.

He said lines were using facilities as far away as Malta and Italy’s Gioia Tauro.

European carmakers should use this market slowdown to play catch-up with Chinese rivals

After a crash, the pain can be delayed but then hits with a vengeance. That is the danger European carmakers face.

Sales of battery electric vehicles (BEV) in Europe dropped 11.3 per cent year on year in March, the second fall in four months, according to figures this month. The timing of Easter played a part. But globally sales growth has also slowed. Tesla is cutting 10 per cent of its global workforce. Mercedes-Benz has pushed back its electrification target.

For Europe’s laggard carmakers, if not the planet, slowing EV growth isn’t all bad news. They took a lackadaisical approach to electrification compared with Chinese rivals. European carmakers’ shares have held up well in the year to date. Meanwhile, EV specialist Tesla is down 40 per cent.

Sales of higher-margin combustion engine vehicles help with cash flows while the legacy European companies invest in electric models. The question is how long the breathing space will last.

The industry is divided over what recent data tells us. One school of thought is that EV sales growth in Europe has, thus far, been from wealthy early adopters and corporate buyers. As soon as the market needed to rely on the mass market, sales would inevitably slacken. Countries such as Germany dropping subsidy schemes hasn’t helped. But as sticker prices decrease, more drivers should still convert.

The other side in this debate argues that EV forecasts were always overly optimistic, given persistent concerns over price, range and charger availability.

The truth is probably somewhere in between. Jefferies has trimmed its forecast for European battery electricity vehicle penetration this year by 1.6 percentage points to 21 per cent. But don’t write the market off, says the bank’s Philippe Houchois. 

From 2025, European carmakers must comply with new standards for average fleet CO₂ emissions. Some are offering discounts on BEVs to avoid fines next year. These should convert to deliveries in the second half of 2024. Volkswagen reported a 154 per cent year-on-year increase in its BEV order book in Europe in the first quarter. 

As long as governments maintain 2035 targets to ban new combustion engine vehicle sales, a tipping point should still come. 

The bigger worry remains whether European carmakers can compete with Chinese rivals when it does. Chinese carmakers’ product costs are €3,500-€5,000 per unit cheaper than European counterparts, says Fabian Brandt of Oliver Wyman. Without trade restrictions — which hurt European marques that still rely on China sales — it is difficult to see how that gap can close.

Investor’s Susquehanna International Group owns estimated $40bn stake in parent company ByteDance as app faces potential ban

More than a decade ago, ByteDance founder Zhang Yiming sketched out an idea for a new social media company on a napkin in a Beijing coffee shop.

Faith in Zhang led the local partner at Jeff Yass’s Susquehanna International Group to invest $80,000 in the parent company of TikTok and follow up with another $2mn months later.

SIG, a global quantitative trading firm, became Zhang’s first big backer, helping kick-start a social media revolution. SIG now owns roughly 15 per cent of ByteDance, a stake worth about $40bn that represents a significant chunk of Yass’s net worth, according to people familiar with the matter.

His estimated $30bn fortune is now hostage to growing geopolitical tension between the US and China, as Congress moves forward with a potential ban of the viral video platform in its largest and most lucrative market. A bill requiring ByteDance to divest TikTok or face having the app banned over national security concerns may pass in the Senate this week before it is signed by President Joe Biden.

As TikTok’s fate has become intertwined with politics, Yass has increased his political spending, laying out more than $46mn for Republican candidates and making him the largest donor of this election cycle, according to OpenSecrets, a non-profit organisation tracking campaign finance and lobbying.

But his political outlays were not enough to slow the TikTok bill, which sits at the centre of the battle between Washington and Beijing. “Investors are being forced to pick sides,” said Ming Liao of investment firm Prospect Avenue Capital. “Geopolitics is the biggest risk and there is no way to mitigate it.”

Since founding SIG in 1987, Yass has built a business on making many small bets with the potential for outsized payouts. The approach turned SIG into an options trading powerhouse, and it gradually grew into a market maker in more than 600 publicly traded companies including Alphabet, Microsoft and Goldman Sachs. Its publicly reported positions were worth more than $500bn at end of 2023, according to Fintel, an investment research platform.

Yass, an avid poker player who got his start with horseracing, pushed the firm towards venture investing. In 2005, SIG focused its efforts on China, then the fastest-growing large economy in the world with an exploding middle class.

Since then, SIG has put over $3.5bn into more than 350 Chinese start-ups, making Yass’s group among the leading foreign venture capital firms in the country, according to research group ITjuzi. SIG’s stakes include holdings in Chinese groups designing semiconductors and making chip design tools, as well as a cyber security start-up.

SIG has yet to come under scrutiny in Washington, where lawmakers have been investigating the investment activities of many American venture capitalists in China. Two of the groups, Silicon Valley venture capital firms Sequoia Capital and GGV Capital, decided in 2023 to split their operations in response to the push for tech investors to disengage from China.

Under pressure, Yass has gone on the offensive. He is a top backer of Club for Growth, an influential rightwing group, and the main donor behind Protect Freedom PAC, a Republican fundraising super-political action committee aligned with senator Rand Paul, who opposes the TikTok ban.

Trump, who once tried to ban TikTok, has since reversed his position on the app, saying in March that banning it would only serve to benefit Facebook, after meeting Yass and speaking at a Club for Growth event. The group also paid Kellyanne Conway, a former senior Trump political adviser, to do TikTok-related polling.

Trump has said he did not discuss TikTok with Yass. A Yass spokesperson said the billionaire never contributed to Trump and had no plans to do so.

Nearly half of the 15 Republicans who voted against a TikTok bill that passed the House in March counted SIG or the Club for Growth as top campaign donors, according to data from OpenSecrets.

One of the nay votes was from West Virginia’s Alexander Mooney, who has received $2.4mn in support from the Club for Growth and the Protect Freedom PAC for his senate bid.

A spokesperson for Mooney did not respond to requests for comment. “I’m proud to have stayed with President Trump on this one,” he told West Virginia radio station MetroNews in March.

SIG’s investments in China go beyond ByteDance. Unlike traditional venture capitalists, the investment arm is internally funded, meaning it invests only partners’ money, rather than raising capital from external sources such as pension and endowment funds.

SIG’s structure also means that the ByteDance gains accrue directly to Yass and his co-founders instead of outside limited partners. ProPublica, a non-profit investigative journalism outlet that has reviewed Yass’s tax returns, said the ByteDance stake accounted for a major part of Yass’s wealth and estimated he owned 75 per cent of SIG.

The structure has insulated the firm from the whiplash of US politics on China, as it does not have to answer to institutional investors. But new rules unveiled by the Biden administration last year would limit SIG’s ability to invest in Chinese artificial intelligence, semiconductors and quantum computing.

It is unclear if the executive order, which is still in the consultation stage, would force SIG to divest its Chinese holdings in these sectors. Data from ITjuzi shows that out of SIG China’s 389 deals, 49 were in AI-related start-ups and five in chip companies, though the group did slow the pace of China investment last year.

Some of the investments are in sensitive sectors. For example, Yass’s group is the largest outside investor, with a 14 per cent stake, in Beijing Xindun Times Technology, or Trusfort, which provides cyber security solutions to several state-owned groups and government offices including the Ministry of Public Security and the country’s powerful internet regulator, according to public records.

Trusfort’s website says it is “deeply carrying out the [Communist] party and government’s efforts to build a powerful cyber nation” and that it has “demonstrated great responsibility and achievement in advancing the party and national affairs”. The founder Guo Xiaopeng was recently named to Beijing’s top political consultative body.

A spokesperson for SIG and Yass said SIG China did not invest in companies engaged in government surveillance or for which AI was the primary business driver and said Trusfort offered consumer fraud protection for banks and brokerages.

For SIG, no Chinese start-up has been a bigger winner than TikTok owner ByteDance. After funding ByteDance’s seed round, Yass’s group put in “hundreds of millions” more in subsequent funding rounds, according to court records in the US.

If TikTok is banned, it will dent Yass’s fortune, said Li Chengdong, head of internet think-tank Haitun. “Now the most likely outcome is they will shut down the US, and all the American investors in ByteDance will bear the losses,” Li said.

“[Yass] did what he had to do, but there is nothing one financier can do in the face of America’s overarching aim of containing China.”

Energy watchdog’s forecast runs counter to sentiment among many carmakers struggling to sell battery-run vehicles

Sales of electric vehicles will “grow strongly” this year and could see battery and hybrid models account for one in five cars sold worldwide, according to a bullish forecast from the International Energy Agency that runs counter to carmakers’ concerns over consumers’ appetite for EVs.

Despite “challenges in some markets,” the “share of EVs on the roads is expected to continue to climb rapidly” in the coming years, the IEA said in its annual outlook report.

Sales of battery electric and plug-in hybrid cars could rise more than 20 per cent to reach 17mn this year, up from just under 14mn in 2023, and grow to account for as much as two-thirds of global sales by 2035, it said.

“Rather than tapering off, the global EV revolution appears to be gearing up for a new phase of growth,” said IEA executive director Fatih Birol. 

“Based on today’s policy settings alone, almost one in three cars on the roads in China by 2030 is set to be electric, and almost one in five in both the United States and EU. This shift will have major ramifications for both the auto industry and the energy sector,” he said.

The report stands in stark contrast to comments from carmakers, who warn that interest in battery cars among mainstream consumers is falling as they are put off by the vehicles’ higher prices as well as the lack of recharging points.

Both Tesla and BYD — the world’s first and second-largest EV manufacturers — reported a strong drop in sales in the first three months of this year compared with the previous quarter. 

On a year-on-year basis, deliveries fell almost 9 per cent for Tesla while rising 13 per cent for BYD, although the figure was nowhere near the 85 per cent annual growth the Chinese group reported in the first three months of 2023.

The car industry’s use of incentives to stimulate demand has also risen sharply in the past year in big markets, including the US, UK and Germany, as manufacturers try to bring down their prices. 

Yet the IEA said the market was still growing strongly, with global sales in the first quarter of 2024 a quarter higher than the equivalent period in 2023. 

“The number of electric cars sold globally in the first three months of this year is roughly equivalent to the number sold in all of 2020,” it said. 

Much of that growth came from China, where two-thirds of electric cars were already cheaper to purchase than their petrol equivalents, the IEA found.

In the US and Europe, EVs remain significantly more expensive to buy than engine rivals, though they have lower running costs that make them more economical in the long run. 

The IEA forecast that growing exports from Chinese brands would lead to “downward pressure on purchase prices” in other markets over time, helping to drive adoption. 

US manager known for aggressive approach bets markets are too pessimistic about potential losses on utility’s debt

US hedge fund Elliott Management has been buying the bonds of troubled British utility company Thames Water, in a bet that markets have grown too pessimistic over the size of losses that investors may have to take on the debt.

Elliott, which manages about $65bn in assets and is known for its aggressive approach to corporate and sovereign debt restructuring, had built a position in the heavily-indebted water company’s bonds at a discount to face value in recent weeks, according to three people with knowledge of the trade.

Thames Water — which supplies 16mn people in London and the surrounding area, or about a quarter of the population of England and Wales — has suffered a sharp drop in its bond prices after its parent company defaulted on its debt earlier this month.

Elliott’s bet is focused on the top-ranking bonds out of more than £16bn of debt within a so-called regulatory ringfence — which surrounds the core utility and means it has to abide by regulatory conditions. Some of these bonds are trading at little over 70 pence in the pound, as investors have grown more nervous about the potential for deep impairments.

One person with knowledge of the position said these levels were lower than Elliott’s worse-case expectations for these bonds, and the hedge fund firm believes the debt could potentially make it out of Thames Water’s present crisis unscathed. Two of the people said that Elliott’s position was relatively small and it was still evaluating whether to build it to a more material holding.

Elliott declined to comment.

Government contingency plans for a potential nationalisation of Thames Water, which has become a focus for public anger over sewage pollution and mistrust of England’s privatised water system, emerged last week.

They mooted that the £15bn of top-ranking bonds could face losses of 5-10 per cent in the event that the utility has to come back under public control. The £1.3bn of so-called class B debt, which is still inside the ringfence but has a lower-ranking claim on the company’s cash flows, could be hit with even deeper 35-40 per cent impairments.

While Elliott has a long record of distressed debt investing, it is best known in the UK for its activist equity bets, including pushing for change at pharmaceuticals group GSK and more recently at Scottish Mortgage Investment Trust.

Elliott is just one of a number of distressed debt investors that have rushed to buy Thames Water’s bonds in the belief that nervous fund managers are selling them for less than they are worth. The hedge fund has stayed clear of bonds at Thames Water’s holding company Kemble, however, which sit outside the regulatory ringfence and are trading at less than 15 pence.

While Elliott is known for its hardball tactics with creditors — for instance seizing an Argentine naval vessel during a protracted tussle with the Latin American nation — British water company legislation restricts the ability of bondholders to seize assets if Thames Water is unable to service its debts.

Instead, in the event of an insolvency, debt in the securitisation is secured on claims from the proceeds of a sale to a suitable owner. Present shareholders, which include the sovereign wealth funds of China and Abu Dhabi, last month declared Thames Water “uninvestable” and backtracked on plans to inject a further £500mn into the business.

These owners, which also include pension funds Omers of Canada and Britain’s USS universities scheme, are in a stand-off with regulator Ofwat over the amount of shareholder equity needed to support the water company, which requires billions of pounds to overhaul its ageing infrastructure, and the size of increases in customer bills that can be imposed.

Thames Water on Monday updated its business plan to increase the amount it plans to spend on its network to combat environmental issues such as sewage spills by £1.1bn to £19.8bn.