Zale Corporation, the largest fine jewelry retailer in North America, will pay $201 million in cash to buy Piercing Pagoda, Inc., the largest kiosk retailer of low-priced gold jewelry, located in hundreds of U.S. malls. The agreement between Zale, headquartered in Irving, Tex., and Piercing Pagoda, in Bethlehem, Pa., was announced Aug. 11.

‘The mall kiosk business has been on our radar screen for a long time [because it is] extremely synergistic with our existing portfolio,’ says Zale Corp. Chairman Robert DiNicola. ‘ The opportunity to acquire Piercing Pagoda [after months of talks between DiNicola and Piercing Pagoda Chairman Richard Peske] allows us to enter this business in a dominant and big way.’

It also opens up the lucrative market of adolescent and young adult consumers, the traditional shoppers at Piercing Pagoda kiosks, to Zale, which already has major chains in the outlet, moderate-price, upscale and luxury segments of the jewelry market. Now, Zale can now court its jewelry customer ‘from adolescent to their wedding on to maturity and on through their retirement,’ says DiNicola.

Zale offered $21.50 for each of Piercing Pagoda’s 9.3 million shares (about 34% over its closing stock price of 16 on Aug. 10). Zale will pay the entire cash portion upfront, without borrowing, thanks to the sale last month of its private label credit card business. The deal also calls for Zale to assume more than $55 million in Piercing Pagoda debt, which Zale will retire once the deal is completed by the end of September.

Richard Penske, chairman and chief executive officer of Piercing Pagoda, noted Zale’s ‘proven track record of growing and expanding its brands,’ and said its ‘merchandising and marketing expertise will allow Piercing Pagoda to further maxim.’ At press time, it was uncertain if he will remain with the company after the merger. John Eureyecko, however, will stay with Zale as president of Piercing Pagoda. The company headquarters, as well as its approximately 350 employees, will remain in Bethlehem, Pa. A few store locations will be closed, and some duplicate operations will be consolidated.

Piercing Pagoda operates 940 locations, with some 5,000 employees, in 640 malls in 44 states and Puerto Rico under the names of Piercing Pagoda, Plumb Gold, Silver & Gold Connection and Diamond Isle. Its Web site is (www.pagoda.com) . Its sells a wide selection of popular-priced 14k and 10k gold chains, charms, bracelets, rings and earrings, as plus some silver and diamond jewelry. The average sale is $29. It offers free ear piercing with purchases. It reported revenues of $280 million for the year ended Mar. 31 and a net income of $13 million.

Zale Corporation, prior to the transaction, operated about 1,390 retail jewelry stores located throughout the United States, Canada, Puerto Rico, and online, including Zales Jewelers, Zales Outlet, Zale.com at www.zales.com , Gordon’s Jewelers, Bailey Banks & Biddle Fine Jewelers and Peoples Jewellers. Preliminary results for fiscal year 2000, which ended July 31, report total sales of $1.794 billion, compared to $1.429 billion for the prior fiscal year, a 25.5% gain. On a comparable store basis, sales increased 11.6%.

JCK