In a late Valentine’s Day present to stakeholders, shares of Zale Corp. (ZLC) are soaring on massive volume in Wednesday trading after the jewelry company agreed to be acquired by bigger rival Signet Jewelers Ltd. (SIG) for $690 million in cash to create a retail powerhouse in North America and Canada. The combined company will have more than 3,000 stores generating about $6.2 billion in annual sales.
Per the agreement, Signet will acquire all of the outstanding shares of Zale for $21 per share in cash, representing 41 percent premium to the Tuesday closing price of ZLC stock of $14.91. Including debt, the deal has an enterprise value of $1.4 billion.
Golden Gate Capital, which owns about 22 percent of Zale’s stock, has agreed to support the acquisition.
Zale Corporation, a 90-year-old, Dallas-based specialty retailer of diamond and other jewelry products, operates approximately 1,680 retail locations throughout the United States, Canada and Puerto Rico, as well as online. Brands under Zale’s umbrella include Zales Jewelers, Zales Outlet, Gordon's Jewelers, Peoples Jewellers, Mappins Jewellers and Piercing Pagoda.
Bermuda-based Signet is the largest specialty jewelry retailer in the U.S. and United Kingdom, with more than 1,400 stores in all 50 states. The best-known U.S. brands for Signet are Kay Jewelers and Jared The Galleria of Jewelry. In Britain, the company operates more than 500 stores, mostly under the H.Samuel and Ernest Jones monikers.
Excluding one-time costs, the acquisition is expected to be high single-digit percentage accretive to earnings in the first full fiscal year upon completion of the transaction. The merger is expected to generate synergistic savings of approximately $100 million annually.
No expected date for the closing of the transaction was offered and is still subject to shareholder and regulatory approvals.
"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," commented Theo Killion, chief executive of Zale, in a statement today. Killion will stay on board to run the Zale division, reporting to Mike Barnes, CEO of Signet.
Zale was hit hard by the Great Recession five years ago, but launched a restructuring plan in 2010 that included closing stores and letting go of employees that subsequently resulted in a recent return to operating in the black in 2013.
"This transformational acquisition further diversifies our businesses and extends our international footprint, opening the door to greater growth and innovation across the enterprise," stated Barnes.
Shares of ZLC have hopped ahead by 40.1 percent to near the buyout price. SIG stock isn’t too shabby either on the engagement news, surging 16.75 percent to an all-time high of $92.55 in Wednesday morning action.