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Fashion group Tapestry said Thursday that it was dropping its $8.5 billion bid for Capri, the owner of luxury brands including Michael Kors and Versace, following a successful legal challenge by US regulators.
The deal was seen as an attempt to form a new global fashion giant to compete with European powerhouses.
But the Federal Trade Commission (FTC) had sued to block the merger.
In blocking the deal for Tapestry -- which owns Coach -- to buy Capri last month, a US court found that "the merging parties are close competitors, such that the merger would result in the loss of head-to-head competition."
The ruling was seen as a victory for the FTC. Both the FTC and Department of Justice's antitrust division have stepped up action against corporate mergers in recent years, citing competition concerns.
"Capri and Tapestry mutually agreed that terminating the merger agreement was in the best interests of both companies," Capri said in a statement.
This was because the deal was unlikely to get US regulatory approval before it was due to expire in February, the statement added.
"I remain confident in Capri's long-term growth potential," said John Idol, Capri's chairman.
He added that "we have recently started to implement a number of strategic initiatives to return our luxury houses to growth."
In a separate statement, Tapestry chief executive Joanne Crevoiserat said: "We have always had multiple paths to growth and our decision today clarifies the forward strategy."
The FTC's move to block the deal was somewhat of a surprise, with such actions rare in the fashion industry. The sector is generally considered fragmented with no risk of a dominant player.
The agency argued, however, that the proposed merger threatened to "deprive millions of American consumers of the benefits of Tapestry and Capri's head-to-head competition."
In court documents last month, the companies argued that the ruling would effectively block their merger permanently.
Looking ahead, Tapestry's Crevoiserat said Thursday that the company "remains in a position of strength" and has "robust cash flow."
"We have significant runway ahead," she added.
The company also announced that its board of directors has approved an added $2 billion share repurchase program.
While "there is no break fee associated with the transaction," Tapestry has agreed to reimburse Capri's expenses incurred in relation to this deal.
The amount, it said, is around $45 million.
B.Gopalan--DT