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Signet Jewelers to Buy Zale Corp. for $1.4B

Jewelry giants to create an enterprise with projected annual sales of about $6.2 billion and more than 3,600 stores on two continents.

In a union of the two largest mall-based retailers in the jewelry sector, Signet Jewelers Ltd. has agreed to acquire Zale Corp.
 
Zale shareholders would receive $21 a share in cash, valuing the purchase at $1.4 billion, including debt, and creating an enterprise with projected annual sales of about $6.2 billion and more than 3,600 stores on two continents.
 
The deal combines Signet’s 1,954 stores in the U.S. and U.K., with brands including Kay Jewelers, Jared and H. Samuel, with Zale’s footprint in the U.S. and Canada, where it operates 1,694 stores under brands including Zales and Peoples. Signet’s sales during the fiscal year ended in February 2013 were $3.98 billion while Zale’s volume reached $1.89 billion in the fiscal year ended in July.
 
The $21 price provides Zale shareholders with a 40.8 percent premium over the $14.91 closing price of shares on Tuesday. The stock gained 39.8 percent to $20.85 in pre-market trading Wednesday. Signet shares closed at $79.27 Tuesday and were up 10.9 percent to $87.95 in Wednesday’s pre-market trading.
 
The transaction is expected to be financed through bank debt and other debt financing and securitization of “a significant portion of Signet’s accounts receivable portfolio,” Signet said. It already has the support of Golden Gate Capital, holders of 22 percent of the common stock of Dallas-based Zale, and is subject to the approval of Zale’s stockholders, regulatory approvals and other standard closing considerations.
 
“This transformational acquisition further diversifies our businesses and extends our international footprint, opening the door to greater growth and innovation across the enterprise,” said Mike Barnes, Signet’s chief executive officer. “The addition of Zale to the Signet family is consistent with our long-term growth strategy and leverages our combined operating expertise to create better choices for our customers, new opportunities for our employees, and makes us a more attractive partner to our vendors. In addition, it allows us to better optimize our balance sheet, creating long-term value for our shareholders.”
 
Theo Killion will continue to run Zale as ceo and report to Barnes.
 
“Having successfully completed our multiyear turnaround program to return to return to profitability, Signet’s operating strengths will enable us to accelerate Zale’s performance improvement for the benefit of our current and future guests,” Killon said.
 
In a presentation to investors, Signet said that its Kay nameplate’s sales were about $2 billion, making it the top jewelry store in the U.S. Jared’s sales were pegged at about $1 billion, making it the top off-male specialty jeweler in the U.S. In the U.K., Signet’s H. Samuel and Ernest Jones brands were pegged at numbers one and two, doing $400 million and $300 million in sales, respectively.
 
J.P. Morgan Securities LLC advised Signet on the deal and J.P. Morgan Chase Bank N.A. committed to bridge financing. BofA Merrill Lynch advised Zale.