Peace Mark Acquisition Confirmed

William George Shuster, Senior Editor -- JCK-Jewelers Circular Keystone, 10/13/2008 10:25:00 AM

Chow Tai Fook, the giant Hong Kong jewelry retail group, has confirmed it will take over hundreds of watch stores and two manufacturing facilities of bankrupt international Hong Kong watch maker and retailer Peace Mark (Holding) Ltd.

Chow Tai Fook, privately owned by Hong Kong business tycoon Cheng Yu-tung (pictured), will acquire, run and develop Peace Mark's watch retail network (about 120 multi-brand and specialty image stores and over 1,000 mid-price watch retail stores) in mainland China, Hong Kong, Macau, and Taiwan. It will also get two watch movement factories in mainland China, and assume some of Peace Mark's debt.

At press time, it was unclear how the deal affects the Swiss-made Milus luxury watch brand, owned by Peace Mark, or Peace Mark’s agreement with Tourneau, Americas biggest watch retailer, to build a chain of fine watch stores in China. (Tourneau and Milus officials, when contacted by JCK, had no comment.) Peace Mark—which has offices and markets in the United States, Europe, and other Asian countries—also had exclusive rights to operate De Beers retail stores in China and develop that market for the French high-end jewelry brand Boucheron.

Acquisition of Peace Mark’s stores is a “unique opportunity” for Chow Tai Fook to significantly expand its retail network in China, already in scores of cities there, said Dr. Henry Cheng Kar-Shun, director of Chow Tai Fook.

“With Chow Tai Fook’s operational experience in the Greater China region and resources,” he noted. “We strongly believe the network of Chow Tai Fook throughout China after the acquisition will establish a predominant footprint in the jewelry and watch retailing business unparalleled in the market.”

Chow Tai Fook didn’t disclose the acquisition price, but reports in the Hong Kong press say the deal will be finalized by the end of October at a cost of over $90 million ($HK700 million) to Chow Tai Fook.

The Oct. 3 agreement was approved by the Hong Kong high court Oct. 6 and formally announced by Chow Tai Fook Oct. 9.

Two weeks ago Peace Mark sold its Swiss watchmaking facilities (STM Holding, which makes about 300,000 mechanical movements and 100 million quartz ones annually, and has high-end clients) to the Festina group, the upscale Spanish watch company, whose several brands include Festina, Jaguar and Perrelet.

Peace Mark is an international Hong Kong-based watch maker, distributor, and retailer, has 10,000 employees in China and abroad, and annual earnings of about $900 million. Its own watch brands have included Milus and Sergio Valente, while among its many licensed timepieces are Bill Blass, Fiorucci, Montana, Pierre Cardin, and Technos. It also distributes other brands—including Faconnable, Givenchy, Marie Claire, Nina Ricci and Technomarine—in China. (Reportedly, two thirds of Swiss watches in China were distributed by Peace Mark.)

In late 2007, Peace Mark bought STM (a movement-making competitor to ETA, Seiko and Citizen), and then Sincere Watch, a chain of 150 fine watch stores in southeast Asia. Early this year, it secured a $500 million bridge loan from international banks to finance that purchase and existing loans.

This summer its stock price on the Hong Kong Exchange began falling on rumors about its financial situation and whether it had overextended itself. In August, the company suspended trading and an English private equity firm withdrew a buyout offer.

In early September, Peace Mark announced it couldn’t meet sudden demands by some banks to repay $156 million. Lenders cancelled the bridge loan, making it difficult for Peace Mark to repay existing loans and prompting demands from other creditors. On Sept. 11, two “provisional liquidators” (similar to bankruptcy administrators) from Ferrier Hodgson, specialists in corporate recovery and insolvency, with agreement by Peace Mark and major creditors took over and began what they called “an urgent assessment of [Peace Mark’s] financial position and operations” in consultation with management, creditors and other stakeholders.