The US Federal Trade Commission (FTC) is preparing to sue to block Coach parent Tapestry’s $8.5 billion deal to buy Michael Kors owner Capri Holdings, 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 next 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 proposed in August last year aimed to create a US fashion powerhouse amid a gradual slowdown in demand for luxury goods in the US as sticky inflation forces customers to cut back on discretionary spending.

“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.

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 and the FTC did not immediately respond to Reuters requests for comment.

Capri’s shares were down 5 percent before the bell, while those of Tapestry were flat.

By Savyata Mishra; Editor: Shounak Dasgupta

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Tapestry Merger With Versace Owner Capri Gets EU, Japan Approval

Coach parent Tapestry’s $8.5 billion deal to buy Michael Kors owner Capri Holdings has received regulatory clearance from the European Union and Japan, the companies said.