A federal court sides with the FTC, which argued that a Tapestry-Capri merger would raise prices for handbags.

A federal judge on Thursday blocked Tapestry Inc.’s planned $8.5 billion acquisition of Capri Holdings, agreeing with regulators that the deal would hurt competition in the handbag industry.

A U.S. judge blocked the pending $8.5 billion merger of U.S. handbag and accessories maker Tapestry and Capri on Thursday, a victory for the U.S. Federal Trade Commission that is a likely death blow to the deal.

The Federal Trade Commission filed a suit in April seeking to block the intended deal, arguing it would curb competition in the so-called accessible luxury market.

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 injuction to block the proposed merger,

The $8.5 billion merger deal between US luxury groups Tapestry (NYSE:TPR) and Capri has been blocked by a US judge, in a win for federal regulators who have sued to keep the tie-up from moving forward earlier this year.

The government's court victory threatens the deal, which was set to put Michael Kors, Coach and Kate Spade under the same corporate umbrella.