Boston, MA 02/19/2014 (wallstreetpr) – Signet Jewelers Ltd. (NYSE:SIG) is interested in taking over the entire diamond chain of Zale Corporation (NYSE:ZLC) and for that, it is willing to invest $1.4 billion. In other words, SIG is betting big on Zales that it is offering a 41 percent premium over Zale’s previous closing price in a deal that is expected to be all cash.
In order to raise the financial requirement for the takeover ($1.4 billion), Signet will look into its receivable portfolio account and debt financing. The company will pay $21 on each share of Zale, a significant upside from the Tuesday closing price. But given that prospects that Zale offers, Signet is not worried about making such an expensive and ambitious move.
Zale Corporation which is the acquisition target had its stock soaring in pre-market trading and opened at a new 52-week high of $20.92.
Explaining the Move
Signet Jewelers Ltd. (NYSE:SIG) CEO Mike Barnes has explained why his company is betting big on Zale. First, acquisition of ZLC will boost the company’s international presence. Second, it will answer the company’s long-term view to create better choices for its customers and new opportunities for employees.
And beyond all the aforementioned, Signet Jewelers Ltd. (NYSE:SIG) believes that in taking over Zale, it will become more attractive to its vendors. If all that is achieved, balance sheet will have been strengthened and long-term value created for shareholders.
While Signet Jewelers Ltd. (NYSE:SIG) is taking over Zale Corporation (NYSE:ZLC) at a premium price, the company has announced that it will retain the current CEO Theo Killion. However, he will now report to Mr. Barnes once the deal is closed. Maintaining Killion at Zale is a clever strategy to ensure that the company continues to accelerate performance its clients because Mr. Killion already knows the ins and outs about satisfying current and future customers.
The will be closed if shareholder and regulatory approvals are obtained.
Signet Jewelers Ltd. (NYSE:SIG) hopes that it will witness a high single-digit percentage increase in its earnings in the first fiscal year after closing the transaction with Zale.
News about the merger of Signet Jewelers Ltd. (NYSE:SIG) and Zale Corporation (NYSE:ZLC) excited the morning trading whereby shares on both ends took off significantly. Zale surged more than 40 percent in the early trading session while Signet was hovering above 12 percent per share in the pre-market session. All the stocks opened at new 52-week highs.