Diamond dealers show how to make M&A sparkle
By Jeffrey Goldfarb
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Leave it to a couple of diamond dealers to show how to make M&A sparkle. Jewelry retailer SignetāsĀ stock shone brighter after it agreed to buy smaller rival ZaleĀ at a 41 percent premium for $1.4 billion. Thatās what happens when the cost savings effectively cover the purchase price. It makes the tarnish on shareholder-unfriendly transactions involving ComcastĀ and Jos. A. BankĀ all the more noticeable.
A good fit usually gets spotted by the market. Together, Bermuda-based Signet, owner of Kay Jewelers in the United States and H. Samuel in Britain, and Dallas-based Zale will have over 3,000 shops peddling engagement rings and other baubles. The companies expect to squeeze $100 million out of the combination annually. Taxed and capitalized, those cuts are worth about $700 million today, or just about what Signet is paying for Zaleās equity.
Investors are expecting even more bling, though. Signetās shares jumped 17 percent on Wednesday morning, adding $1.1 billion to its market value. Itās simple, classic deal math that never goes out of style and also the sort that can make other acquisitions look gaudy by comparison.
Comcastās $70 billion plan to take over Time Warner CableĀ is one recent example. The biggest U.S. cable operator has lost $7 billion of market value since announcing its intentions last week. That suggests owners other than the Roberts family, which controls a third of Comcast in perpetuity, expect the deal to destroy value. The same goes for Jos. A. Bank, the menās clothier using the absurdly expensive tactics of another acquisition and a stock buyback either to goad or to evade suitor Menās Wearhouse.
Signet waited for what seems like an unusually long time to capitalize on the evidently huge benefits of buying Zale. It is perhaps evidence of the hesitation in boardrooms globally to take a chance on M&A. The stark differences in market reception, however, are making it clearer just when investors want a company to put a ring on it.