(Bloomberg) -- US antitrust enforcers are preparing a lawsuit seeking to block handbag maker Tapestry Inc.’s $8.5 billion planned takeover of rival Capri Holdings Ltd., according to a person with knowledge of the matter.

The Federal Trade Commission is expected to file a lawsuit as soon as April 22, according to the person, who asked not to be named discussing a private matter.

In a statement, a Tapestry representative said, “We strongly believe this is a deal that deserves to clear as it is pro-consumer and pro-competitive.” Tapestry’s and Capri’s brands compete in a dynamic luxury market, she added, and consumers have ample choice across categories and price points.

If successful, the suit could scuttle the creation of a US-based luxury conglomerate that aims to compete with the big European fashion companies. Tapestry sells leather products and other luxury goods under the Coach, Kate Spade and Stuart Weitzman brands, while Capri controls high-end labels Michael Kors, Versace and Jimmy Choo. 

Shares of Capri were about unchanged at 10:38 a.m. in New York, while Tapestry fell 1.1%. Capri’s stock price is down around 12% over the past six trading sessions, amid perceived negative comments last week from FTC officials about how they define market share. The gap between where Capri is trading and Tapestry’s $57-per-share takeover bid is at more than $18 on Wednesday, the widest level since the merger was announced in August.

Read More: Traders Fear Antitrust Risk in $8.5 Billion Tapestry-Capri Deal

The FTC’s concerns stem from the tie-up of two major players in the midtier or accessible luxury handbags market. Their competition in outlet markets has raised concerns at the agency, given what the person said was evidence of tit-for-tat discounting among some of the brands.

Tapestry remains undaunted. Before the news about the FTC move, first reported by the New York Times, Chief Executive Officer Joanne Crevoiserat had reiterated that she expects the company to complete the deal in this calendar year. 

“We know that given the landscape, it just takes time to work through the issues,” she said in an April 15 interview with Bloomberg. She added that Tapestry doesn’t plan to shed brands to complete the acquisition: “We don’t think that it’s necessary.”

Oliver Chen, an analyst at TD Cowen, estimates the deal has more than a 50% chance of closing — a figure that’s more optimistic than what the market is pricing in — in part because there’s no precedent for blocked acquisitions within the fashion accessories sector, he said. 

Chen cited “low barriers to entry, selling across multiple physical and digital channels, uncorrelated promotions” in the fashion sector and other factors in a research report published Wednesday. 

The combined companies would be the fourth-largest luxury company in the world and second-largest in the Americas after LVMH, according to research firm GlobalData. That had already attracted regulatory scrutiny, and had traders increasingly concerned that the FTC might act to block the deal.

FTC Chair Lina Khan and Justice Department antitrust chief Jonathan Kanter are pursuing aggressive antitrust enforcement under President Joe Biden’s economic agenda, citing limited consumer choices and higher prices. The FTC said it brought 24 enforcement actions, and the DOJ’s antitrust division 26, in the fiscal year that ended Sept. 30, 2022 — the highest total number of challenges since the US began requiring pre-merger antitrust review in 1976, Bloomberg reported in December.

The FTC’s move comes after the European Union unconditionally approved the deal on April 15, according to a filing on its website.

--With assistance from John Lauerman and Peter Chapman.

(Updates with company comment in third paragraph, shares in sixth, analyst comment in 10th and 11th.)

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