Signet Jewelers Ltd., operator of the Kay and Jared brands, announced today it will buy rival Zale Corp. for about $1.4 billion.
The move expands the market leadership of Signet as the largest jewelry chain in the U.S. Signet is based in Bermuda, but it’s U.S. division is headquartered in Akron and employs more than 2,000 in the city.
The offer of $21 in cash per Zale share is about 41 percent more than Zale’s closing price from Tuesday trading.
The transaction represents an enterprise value of 7.4 times Zale’s adjusted earnings before interest, taxes, depreciation and amortization, according to a statement.
Signet is making its biggest acquisition after jewelry was among the strongest categories during the holiday season, according to MasterCard Advisors SpendingPulse.
The retailer is gaining brands including Zale and Peoples, adding more than 1,600 retail locations to its 1,900 stores and strengthening its lead over Tiffany & Co. in the U.S.
Signet is also taking on a rival that has seen shrinking sales growth for two years.
“Zale needs a jewelry merchant to run it and who better than Signet, which has been consistently successful over the years,” said Ken Gassman, president of the Jewelry Industry Research Institute. “This should assure the success of Zale.”
The deal is a step further in the long and slow consolidation of the U.S. jewelry industry as stores face stiffer competition from online jewelry sellers like Blue Nile Inc., said Gassman, who is based in Glen Allen, Va.
He also noted that Zale’s current non-executive chairman, Terry Burman, is the former chief executive officer of Signet.
U.S. fine jewelry and fine watch sales rose 7.8 percent to $73 billion last year, outpacing the rest of the overall retail industry, Gassman said.
Signet’s stock jumped 13 percent to $89.69 at 8:32 a.m. in New York, before the markets opened, after gaining 28 percent in the past year. Zale, which had more than tripled in the past year, rose to $20.95.
Golden Gate Capital, which owns about 22 percent of Irving, Texas-based Zale, is supporting the deal, Signet said.
Analysts anticipate sales will be little changed at Zale in the year ended July, according to data compiled by Bloomberg News.
Back in June 2006, Hamilton, Bermuda-based Signet ended talks to buy Zale after Zale’s board decided to keep the company independent.
During the most recent recession in the U.S., Finlay Enterprises Inc., Fortunoff Holdings LLC, Whitehall Jewelers Holdings Inc. and hundreds of independent jewelers shut down as consumers cut back on discretionary spending.
Signet said it will finance the acquisition through bank debt, other debt financing and the securitization of a portion of its accounts receivable portfolio.
JPMorgan Chase & Co. advised Signet on the deal, and Weil, Gotshal & Manges LLP provided legal counsel. Zale was advised by Bank of America Corp. and Cravath, Swaine & Moore LLP.
Zales, Gordon’s and Peoples, among others, has about 32.9 million outstanding shares, according to business research firm FactSet.
Zale returned to a profit in its most recent fiscal year, which ended July 31. More recently the chain reported its holiday sales in stores open at least one year, a key retail metric, rose 2 percent during November and December. Meanwhile, Signet reported the key figure rose 5 percent during the same period.
The acquisition still needs approval from Zale shareholders.
Theo Killion is expected to remain Zale CEO. Killion said in a statement that the move will help accelerate growth, coming after Zale completed its “multi-year turnaround program to return to profitability.”
The deal is expected to add to Signet earnings by a high single-digit percentage rate in the first full fiscal year after the transaction closes, excluding some costs.
Bloomberg News and the Associated Press contributed to this report.