Signet Jewelers To Acquire Zale Corp.

Mike Barnes, Signet CEO, will lead the combined companies.

In a surprise announcement two of the largest retailers in the US have agreed to become one company. 

Signet Jewelers Limited, the largest specialty retail jeweler in the US and the UK, and Zale Corporation, a leading specialty retailer of fine jewelry in North America, said Wednesday that they have entered into a definitive agreement for Signet to acquire all of the issued and outstanding stock of Zale for $21 per share in cash, or $690 million. Including debt, the deal values Zale at $1.4 billion. 

The transaction brings together two of today's leading jewelry retailers with six of the most recognizable brands across four countries. The combined company will have approximately 3,500 retail locations in the US, Canada, Puerto Rico and the UK with combined sales of $6.2 billion “and enhanced operating capabilities expected to generate approximately $100 million in annual synergies within three fiscal years,” the two companies said in a joint statement released Wednesday morning. 

Mike Barnes, Signet CEO  will hold the same position in the combined company, according to the statement. Theo Killion, Zale CEO, will continue to operate the Zale portion of the business and report to Barnes.

"This transformational acquisition further diversifies our businesses and extends our international footprint, opening the door to greater growth and innovation across the enterprise," Barnes said. "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. We are excited about the prospects for the combined company and the many opportunities that this creates for our future.”

Killion added, "Having successfully completed our multi-year turnaround program 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."

Signet's offer represents a premium of 41 percent over Zale's closing price as of February 18, according to the statement. It represents 7.4 times the EBITDA value over a 12-month period. As part of the transaction, Signet has entered into a voting and support agreement with Golden Gate Capital, the beneficial owner of approximately 22 percent of Zale's common stock. The transaction is expected to be high single-digit percentage accretive to earnings in the first full fiscal year after the close of the transaction, excluding acquisition accounting adjustments and one-time transaction costs.

The acquisition is expected to be financed through bank debt, other debt financing and the securitization of a significant portion of Signet's accounts receivable portfolio.

Signet has 1,400 retail locations that operate under the brands Kay Jewelers, Jared The Galleria Of Jewelry and regional brands. Signet's UK division operates approximately 500 stores primarily under the brands of H.Samuel and Ernest Jones.

Zale Corp. has 1,680 retail locations in the US, Canada and Puerto Rico. Its brands include Zales Jewelers, Zales Outlet, Gordon's Jewelers, Peoples Jewellers, Mappins Jewellers and Piercing Pagoda.

The transaction is subject to Zale stockholder approval, certain regulatory approvals and customary closing conditions.

J.P. Morgan Securities LLC acted as exclusive financial advisor and provided a fairness opinion to the board of directors of Signet and J.P. Morgan Chase Bank, N.A. committed to provide bridge financing for the transaction. Weil, Gotshal & Manges LLP acted as legal counsel to Signet in connection with the transaction. BofA Merrill Lynch acted as exclusive financial advisor and Cravath, Swaine & Moore LLP acted as legal counsel to Zale in connection with the transaction.

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