Zale, in Search of New Markets, Will Buy Gordon Jewelry Corp.
Zale Corp., the nation’s largest jewelry chain, moved Wednesday to conquer new regions and younger markets, saying it will buy No. 2 Gordon Jewelry Corp. for $310.9 million.
Privately held Zale is offering $36.75 a share for Houston-based Gordon, a chain with more than 600 stores. The new company will have more than 2,000 stores and annual sales of $1.3 billion, analysts said.
Gordon shares shot up $6.375 to $36.125 on the New York Stock Exchange, a gain of 21%. The stock was already trading at record levels because of takeover speculation.
The deal will enhance Zale’s status among young buyers and in different regions, analysts said, citing Gordon’s younger customers and its presence in states where Zale is weak, including Minnesota, Indiana and West Virginia.
About two-thirds of Gordon’s stores sell modern, moderately priced jewelry, almost exclusively in shopping malls. The remainder are traditional, upper-end stores that operate under different names in each market.
“It’s a positive move for Zale--a good strategic move to grow their business in highly fragmented industry dominated by independents,” said analyst Nancy Self of Burns Fry Ltd. in Toronto.
“Even the world’s largest jewelry retailer must fight on a mall-by-mall basis,” Self said.
$900 Million in Sales
The merged company will also have greater clout in purchasing jewelry and more freedom to cut overhead costs, analysts said.
“Clearly, in terms of numbers, they will be able to capitalize on their market position,” said George Hartman, an analyst in the Toronto firm of Brown Baldwin.
Zale, based in Irving, Tex., has more than 1,300 stores and annual sales of more than $900 million, analysts said. Zale is equally owned by Toronto-based Peoples Jewellers Ltd. and Switzerland’s Swarovski International Holding AG.
Zale officials were not available to comment on the fate of Gordon stores that compete directly with Zale.
“My inclination is to expect them to use the Gordon stores under the Gordon name to compete in different segments,” Self said. “The Gordon stores attract a different customer.”
Gordon earned $6.2 million on sales of $389.6 million last year. The company said April 10 that it was considering options to enhance shareholder value, including a possible sale.
Gordon Chief Executive Daniel Gordon said in a statement: “We believe the transaction provides excellent value for our stockholders and are extremely pleased with the result.”
Zale already owns about 4.2% of Gordon and will launch a tender offer for the rest of the company. Owners of about 54% of Gordon’s shares have already agreed to sell to Zale, Gordon said.
