In the Spotlight: Zale, Derco

Following up on last week’s post on Zale, Breeden Capital Management — again — increased its stake in Zale, this time  to nearly 16%. It is now Zale’s largest shareholder, having invested over $100 million in the company. Granted, Zale’s stock is pretty cheap these days, but given Breeden’s history of “activism,” one assumes there is an endgame.

Here is the New York Post’s take…

Former SEC Chairman Richard Breeden …is gearing up for a proxy battle with jewelry giant Zale, The Post has learned.

"No director should think their job is safe," [a source familiar with Breeden Capital’s thinking] said. Noting that the vast majority of Zale shares are controlled by fewer than 10 institutional investors, the source said it’s possible that "every single one can and will be replaced."

Tough talk, but I’m unimpressed. Breeden may be able to force out Zale’s directors (and really, does Zale need more new management?) But then what?  Is there a way forward here, or is Breeden just a rebel without a clue?

It’s certainly disheartening to read yet more speculation, this time from deal.com, that Zale will try and merge with Signet.  A merger would be terrible for the industry, but I could see Breeden pushing it. Here, James Cramer argues “there’s no money for these guys, just bluster.” It just might be. Plus, my commenters have some wise words.

[UPDATE 1/9: Check out some very interesting speculation here.]

- The recent Chapter 11 filing of three-store California chain Derco has caught the trade’s attention, despite it being a relatively small company.

The biggest unsecured creditor is Eurostar, which, between its three Antwerp divisions, is owed nearly $2 million.

Others listed on the bankruptcy papers include: Adir Ltd., $117,136.14; Arslanian Freres, $ 294,183.73; Daniel K $216,453.50, Eclipse Jewelry Corp., $213,882.50; EFD (USA) Inc.,  $139,231.95; EFD Diamonds Ltd., $320,768.53; Etessami Bros. Corp.  $395,862.32; FIBI Fine Diamond Manufacturers, $317,500.00; H. Pinashi, Inc., $118,454.61; KGK Diamonds LLC, $277,858.62; Koder Co., $449,826.63; Olympic Diamond Corp., $607,307.17; Ousher Lerner, $759,526.67; Sachrida Styling, $152,769.44;  Waldman Diamond Company, $216,131.65;  WF Diamonds, Inc., $222,309.51.

It was a pretty bad holiday, and we may not be seeing the last of these. Already, since New Year’s, there has been two retail bankruptcies (Alpha Omega’s the other), plus a reported bankruptcy from a wholesaler in India. This is shaping up a tough year. 

More on Derco here.