By Savyata Mishra
(Reuters) -The U.S. Federal Trade Commission (FTC) is preparing to sue to block Coach parent Tapestry (NYSE:TPR)'s $8.5 billion deal to buy Michael Kors owner Capri, NYT Dealbook reported on Wednesday, citing people familiar with the matter.
The deal, which would bring together top luxury labels such as Tapestry's Kate Spade, Stuart Weitzman and Capri's Jimmy Choo and Versace, received regulatory clearance from the European Union and Japan on Monday.
The FTC's five commissioners are expected to meet this week to discuss the case, a move that could precede a formal vote on whether to file a lawsuit, according to the report.
The merger aimed to create a U.S. fashion powerhouse to compete better with bigger European rivals amid a slowdown in luxury spending.
The FTC had sought additional information on the merger from the two companies in November, a few months after the deal was proposed in August.
"The most significant incoming questions (on the deal) have focused on deal break valuation as well as long-term Capri shareholder interest," TD Cowen analyst Oliver Chen said.
Supermarket chain Kroger (NYSE:KR)'s $24.6 billion proposal to buy smaller rival Albertsons (NYSE:ACI) has been in a lurch since the FTC and eight states sued to block it in February, as the Justice Department takes a tougher stance on big mergers, according to new guidelines in December.
In its latest quarterly earnings in February, Tapestry raised its annual profit forecast, betting on full-price sales of its premium handbags, while Capri missed third-quarter revenue and adjusted profit estimates.
The companies did not immediately respond to Reuters requests for comment. The FTC declined to comment.
Capri's shares were down 1.6% in the afternoon trade, while those of Tapestry were down nearly 1%.