Harry Winston sells jewelry arm to Swatch for $1 billion

VANCOUVER – Eight years after getting into the jewelry sector, Harry Winston Diamond (HW-T) is locking in its gains and getting out, selling its luxury retail unit to Switzerland’s Swatch Group in a $1-billion deal.

Harry Winston Diamond was created in 2006 when Canadian company Aber Diamond bought Harry Winston, the then 70-year old retailer made famous by a jeweler named Harry with an eye for sparkle and a willingness to lend diamonds to the stars of Hollywood.

With a 40% stake in the Diavik diamond mine in Canada’s Northwest Territories and a string of luxury jewelry salons in major cities around the world, the diamond firm straddled the two ends of the diamond spectrum – mining and branded retail. But late last year the company inked a $500-million deal to buy BHP’s diamond assets, including the Ekati diamond mine. Speculation abounded that the company wanted to focus on diamonds in the rough and would soon sell its retail segment.

Seems the speculators were right. Swatch is paying Harry Winston US$750 million for its retail division and will also assume US$250 million in related debt. The famous name will remain with the stores – after the deal closes Harry Winston Diamond will change its name to Dominion Diamond.

The new Dominion Diamond will indeed focus on mining and will become one of only a few pure-play diamond companies in the world, just as supplies are set to fall and prices expected to climb.

“At the time we purchased the Harry Winston brand, resource investment opportunities for diamonds were rare and expensive following the euphoria of the Canadian diamond discoveries and the involvement of large international mining companies, ” said Harry Winston chairman and CEO Robert Gannicott in a statement. “The Harry Winston brand was competitively priced compared with its peers and we could bring diamond expertise and strategic connections to enhance value. Today there is a range of diamond resource opportunities while the value of heritage luxury brands has increased dramatically. This transaction represents a sound return on our original investment.”

It certainly does. The deal is worth $1 billion, nearly three times what Harry Winston paid for the assets.

The cash will come in handy as Harry-Winston-turned-Dominion Diamond surveys a sector ripe for consolidation. Many analysts believe the company will start by going after the 60% of Diavik it does not already own. Other companies exploring for diamonds in Canada could also be on the radar.

Gannicott referenced future acquisitions himself, saying the deal “…will leave us well equipped to realize upstream opportunities in an environment where cash has become a strategic resource.”

For Swatch, the deal fills a gap in the high-end segment of its business, one left after a partnership with Tiffany & Co. collapsed in 2011.  As Swatch chairwoman Nayla Haye described it, “Harry Winston does brilliantly complement the prestige segment of the group.”

Harry Winston and Swatch must have enjoyed doing business. The two say they will retain their relationship, which has seen Harry Winston source polished diamonds for the watch company. In addition the two companies plan to explore the potential for a joint diamond-polishing venture.

Harry Winston’s share price gained 63¢ or 4.4% on the news to close at $14.90, near its 52-week high of $15.85. A year ago, the company’s shares were worth $10.50. Harry Winston has 85 million shares outstanding.