The vote on Zale’s acquisition by Signet is set for Thursday. Given the repeated attacks on the buyout from 9.5 percent shareholder TIG advisors, I have no idea how it will go.

But what’s fascinating is watching a subtle change in how the buyout has been portrayed. When it was first announced, we kept hearing how well Zale was doing, how successful its turnaround has been. That was the rationale for keeping Theo Killion and his team.

But the dissident shareholders seized on that and used it to justify their opposition to the purchase. One of TIG’s presentations was titled: “A Turnaround Story Cut Short?”

So now—perhaps deliberately, perhaps not—we keep hearing more and more about the challenges Zale faces. In one investor Powerpoint, Zale discussed its poor infrastructure, leveraged capital structure, and how its revenue has come in under plan. Investor Powerpoints are generally not forums in which companies talk down their prospects.

And in last week’s Signet conference call, chief finanical officer Ronald Ristau expounded on that theme, estimating that Zale will require $80 million in annual investment:

“There is a substantial amount of work to be done with [Zale’s] infrastructure, the stores, the inventory management system,” he said. “There is a lot of rebuilding work that has yet to be done…and a lot of money that needs to be invested in the business to drive it.”

In other words, Zale has great potential but needs a little work, TLC, and money sunk into it. If it were a piece of real estate, you’d call it a fixer-upper. And that’s one thing that likely makes it attractive to Signet: It can take something that is currently profitable and make it more so (and in the process, eliminate a competitor and get a foothold in Canada).

Both these views seem contradictory, but they really aren’t. Zale’s turnaround was impressive: After bleeding rivers of red ink, last year it earned its first annual profit since 2008. Particularly notable is how it has developed a fleet of successful proprietary brands. And while Signet had nothing serious to fear from Zale, it also had to realize that its most serious competitor wasn’t going away.

Still, like J.C. Penney, Zale wouldn’t need a turnaround if it weren’t in serious trouble in the first place. And even Zale’s best numbers didn’t exactly set the world on fire. As Killion said: “We didn’t come here to earn $10 million a year.” Without serious investment—whether from Signet or someone else—it will never be able to move forward and go up against tough competitors like Kay and Jared. I remember when former CEO Neil Goldberg complained about the company’s infrastructure to me—six years ago.

If the bid is rejected, Signet might give it one more go, or it might walk away. If the latter occurs, Zale’s challenges will remain. While its survival is no longer in doubt—as it was for a while—the new emphasis could change Wall Street’s view that the company had in fact experienced a great turnaround.

Rob Bates

JCK News Director