Swatch Group is to buy Harry Winston Diamond Corporation’s jewellery and watch division for about $1bn, in a move that will help realise the Swiss watchmaker’s long-held aim of increasing its presence in the jewellery market.
Switzerland’s largest watchmaker by sales will pay $750m in cash for the Toronto-listed luxury brand as well as assuming up to $250m in debt, making the deal Swatch’s biggest since its creation in the 1980s.
Analysts said the deal, under which the two companies will also explore the possibility of setting up a joint diamond-polishing venture, made strategic sense for Swatch but was expensive.
“Swatch has been saying for a while that they want to get into the jewellery business but have never really got off the ground, so from that perspective it makes sense,” said Jon Cox, head of Swiss research at Kepler Capital Markets. “The joint venture in diamond sourcing is also positive, since Swatch has said in the past that it has had problems getting its hands on diamonds.”
However, Mr Cox said, at first glance the deal looked expensive, valuing the business at 23 times its earnings before interest, tax, depreciation and amortisation expected for the year to January 31. The average for the sector was 10.
Nayla Hayek, Swatch’s chairman, said the deal would add to her company’s upmarket brands such as Breguet and Blancpain.
For Harry Winston, which in November agreed to buy the Ekati diamond mine in Canada for $500m from BHP Billiton, the deal represents a strategic shift, uncoupling its luxury retail operations from its upstream, mining assets.
Robert Gannicott, chairman and chief executive of Harry Winston, said the sale represented a sound return on the Canadian company’s original investment. Harry Winston, then called Aber Diamond Corporation, acquired the luxury jewellery brand in a two-part deal in 2004 and 2006. The total cost plus subsequent investment in the business came to $294m.
“One of the main reasons that we bought Harry Winston . . . was that we wanted to have the information flow from the polished diamond end of the business to enable us to nimbly price rough diamonds,” said Mr Gannicott, adding that those channels would be maintained, or even expanded, under the Swatch deal.
Harry Winston has a right of first refusal over the 60 per cent stake in Rio’s Diavik mine that it does not already own and is expected to pursue buying that asset, in the event that Rio decides on a sale.
Mr Gannicott said the deal would give it the resources to focus on diamond mining, with further acquisitions possible.
“I don’t believe you can do everything well,” said Mr Gannicott, adding that running Harry Winston’s global store network had been a challenge, one that Swatch would be able to tackle more effectively.
Once the deal with Swatch, which is subject to regulatory approval, is completed, the Canadian group will rename itself Dominion Diamond Corporation.
Harry Winston was advised on the deal by Rothschild. Swatch had no adviser.
Swatch shares rose 4.2 per cent to SFr513. Harry Winston added 4.4 per cent to close at C$14.90 in Toronto on Monday.
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