Swatch reshapes jewellery trade

Firm’s $ 1b payout for Harry Winston brand would be worth it in three to five years

Switzerland’s Swatch has agreed to buy the highend jewellery arm of Harry Winston in a $ 1 billion ( Dh3.67 billion) deal which expands the watchmaker’s luxury offering and leaves the Canadian group to concentrate on its diamond mines.

The move — for $ 750 million in cash plus the assumption of some $ 250 million of debt — gives Swatch one of few available luxury jewellery brands, a marque namechecked by Marilyn Monroe and favoured on the red carpet by Elizabeth Taylor and other Hollywood stars.

Swatch Group is already the world’s biggest watchmaker by sales, with 8.1 billion francs sales in 2012 thanks to brands such as Omega and its colourful Swatch plastic watches.

For Harry Winston, the deal reverses a 2004 link- up between jewellery and mining, after the acquisition of the luxury brand by the mining company that discovered what became Canada’s Diavik diamond mine — now 60 per cent held by Rio Tinto.

The original mining arm, one of the largest listed pure diamond miners, will be renamed Dominion Diamond Corporation, and, flush with Swatch cash, could prove a key player in a consolidating diamond mining industry.

Harry Winston, which has been considering the sale of the luxury arm for months, bought the EKATI mine from BHP Billiton last year. It is also expected to consider Rio’s diamond mines — including the stake in Diavik — after the mining giant said it could pull out of diamonds.

“With Harry Winston, the focus was going to be moving back to mining, so getting a good price ( for the luxury arm) was key to that. This price facilitates the acquisi-

With Harry Winston, the focus was going to be moving back to mining, so getting a good price ( for the luxury arm) was key to that. This price facilitates the acquisition of EKATI, but also creates something of a war chest for future acquisitions.”

Kieron Hodgson

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Charles Stanley analyst

tion of EKATI, but also creates something of a war chest for future acquisitions,” Charles Stanley analyst Kieron Hodgson said.

Higher- end access

For Swatch, the Harry Winston brand has the potential to generate more than 1 billion Swiss francs ($ 1.10 billion) in sales and 250 million net profit in about four to five years, Swatch chief executive Nick Hayek said.

This deal — at a valuation which analysts said was broadly in line with the luxury sector and LVMH’s acquisition of Bulgari in 2011 — allows it to break into highend jewellery, a market dominated by Richemont with its Cartier brand.

“If watches continue to grow as dynamically as in 2012, 9 billion franc sales are within reach in 2013. Now in view of this acquisition, it can of course be even more,” said Hayek. It is Swatch’s latest attempt to get a foothold in high- end jewellery, after a partnership with US group Tiffany ended in 2011 with the companies suing each other.

“From a strategic perspective it is positive — Swatch Group has long said it wanted to expand in jewellery,” Kepler Capital Markets analyst Jon Cox said.