Signet Buys Zale to Form World’s Largest Jeweler

Signet always said: Every kiss begins with Kay. But now a lot more of its sales will begin with Zale’s.

On Feb. 19, Signet Jewelers announced it was buying longtime rival Zale Corp., in a seismic and unprecedented merger of the No. 1 and 2 jewelers in America. The transaction is valued at $1.4 billion.

The combined company will control 3,653 retail locations—1,974 from Signet and 1,679 from Zale—surely making it the world’s largest jeweler, besting Chow Tai Fook, which currently claims 2,000 stores. The new company will generate about $6 billion in sales annually.

“We are extremely excited about today’s announcement,” said an upbeat CEO Michael Barnes on a conference call following the announcement. “It has been a lot of hard work by the teams on both sides and months in the making.”

<< UPDATE: READ BARNES’ INTERVIEW WITH JCK HERE >>

Zale Corp.’s CEO Theo Killion and its current management team will continue to run that division as a stand-alone business segment within Signet, with Killion reporting to Barnes. The company will remain in its Dallas headquarters.

The deal includes all elements of Zale Corp.: the Zale’s chain, Gordon’s, Piercing Pagoda, and Zale Canada (which includes Peoples and Mappins).

“We are not only number one in the United States and the United Kingdom,” said Barnes. “This acquisition will also make our newly combined company number one in Canada as well, and it will allow us to continue building a platform for potential future geographic expansion.”

Barnes also talked up Zale’s strong bridal business, which he said dovetailed nicely with Signet’s, as well as its growing success with proprietary brands, like its Vera Wang LOVE collection and the Celebration Diamond (which Signet and Zale briefly battled in court over). The combined e-commerce sales of both companies is close to $300 million, Barnes said.

A Signet presentation vowed to “invest in and grow the Zale brands,” by optimizing marketing and promotional spending, investing in store remodels, and improving IT infrastructure.

Signet is paying Zale $21 a share, representing a premium of 41 percent over the company’s closing price as of February 18, 2014. The acquisition will be financed through bank debt, other debt financing, and the securitization of a significant portion of Signet’s accounts receivable portfolio.

The transaction will generate $100 million in annual cost savings by the third fiscal year of operation, said Signet chief financial officer Ron Ristau, saying those savings will come mostly from improved product sourcing and SG&A. He also said the purchase will be high-single-digit accreditive within its first year.

A merger of the two longtime rivals has been oft-discussed over the years, and in 2006, the two sides held “preliminary discussions” that ultimately fizzled. When JCK asked Barnes about the possibility of a merger last April, he said, “That would be something else, wouldn’t it? … [We are]  always willing to talk if something looks like it is worth considering.”

Zale’s current board chairman, Terry Burman, formerly headed Signet. As Zale’s board will likely be dissolved, it is not known if Burman will have a role in the new consolidated company.

The transaction is subject to Zale stockholder approval, certain regulatory approvals, and customary closing conditions. The boards of directors of both companies have approved the deal, as has Zale’s largest shareholder, Golden Gate Capital. It is expected to close this year.

This isn’t Signet’s only recent acquisition: In 2012, it bought Ultra Stores.

 

JCK News Director