Tiffany & Co and Swatch Group end their engagement

Tiffany & Co. and Swatch Group AG have parted ways after calling off a 20 year affair. The farewell could hand investors in the bespoke jewelry firm an extra $3.4 billion in a potential deal with some other luxury group.

Swatch, the biggest maker of Swiss watches, canceled a profit-sharing alliance dating back to December 2007 to develop, produce and sell Tiffany brand watches, according to statements from the companies Sept. 12. Biel, Switzerland-based Swatch said Tiffany blocked development of the business, while Tiffany said its brand management and product design rights were impeded. As the Financial Times published earlier this month, Nick Hayek, chief executive of Swatch, told the Financial Times that Tiffany had pushed for the partnership’s creation in 2008 but then neglected it and blocked its development. Swatch is seeking damages of hundreds of millions of dollars, while Tiffany, the US jewellery retailer, responded to Swatch’s termination announcement on last Monday by saying that Swatch itself had failed to “make the necessary commitments and work co-operatively” to develop the business.

Tiffany’s shares have surged 166 percent to $67.47 since the 18-month recession ended in June 2009, giving it a market value of $8.6 billion as of yesterday. That’s triple the 53 percent advance for the Standard & Poor’s 500 Consumer Discretionary Index and more than seven times the 23 percent increase for the S&P 500 during the same period, data compiled by Bloomberg show. Tiffany’s market value had more than tripled to $9.7 billion as of Sept. 19 before the stock fell 11 percent in the past three days. The world’s second-largest jewelry retailer has boosted its market capitalization to $8.6 billion from $3.1 billion in June 2009 when the U.S. economy emerged from the longest contraction since the Great Depression, according to data compiled by Bloomberg.

After Swatch this month terminated a 20-year watch partnership 16 years early, New York-based Tiffany may command as much as a 40 percent premium in an acquisition, or about $12 billion, said Fifth Third Asset Management.
“To get possession of Tiffany’s assets somebody’s going to have to pony up,” Matt Arnold, an analyst for St. Louis-based Edward Jones & Co., said in a telephone interview with Business Week. “Their forays overseas have been stunning. Tiffany’s global brand strength is what makes this thing special, hands down.”

With the breakup of the Swatch deal removing an obstacle for a potential takeover, Tiffany may now lure interest from luxury retailers LVMH Moet Hennessy Louis Vuitton SA and Cie. Financiere Richemont SA, according to Merriman Capital Inc. and Caris & Co. While an acquisition of Tiffany would be twice as large as the biggest purchase of a jewelry retailer, analysts project revenue will increase more than 30 percent in the next two years as the company garners the majority of sales from outside the U.S. by opening more stores in Asia and Europe.
Angela González-Rodríguez