Harry Winston looking to sell luxury business: source

PARIS Wed Oct 17, 2012 4:32pm EDT

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PARIS (Reuters) - Harry Winston Diamond Corp HW.TO is looking to sell its watch and jewellery business to concentrate on mining, and has been approaching potential buyers, a source close to the matter said.

"They are looking to sell these assets and are doing the rounds among potential buyers," the source said.

Talk of a potential sale sent shares of the jeweler soaring more than 10 percent on the Toronto Stock Exchange early on Wednesday. The stock closed up 3.67 percent at C$13.83.

As always when this type of activity hits the market, the big names in luxury, like LVMH (LVMH.PA) and PPR (PRTP.PA), figure prominently among potential acquirers.

The value of Harry Winston's luxury segment, which includes watches, jewellery and retail salons around the world, is around $766 million, or $9 per share, said RBC Capital Markets analyst Irene Nattel in a note to clients.

"But on a transaction basis, we would expect (Harry Winston) to get a premium," she said. "Looking at precedent transactions, the range is relatively wide, but the most relevant appears to be the late 2011 acquisition of Bulgari by LVMH."

LVMH bid 3.7 billion euros ($4.85 billion) for Italy's Bulgari in March 2011, offering a 60 percent premium to the average share price over the month prior to the deal.

By applying the same premium, Nattel sees Harry Winston's luxury brand alone worth some $1.2 billion net of debt, or $14 per share. She maintained her "outperform" rating and $19 price target on the stock.

LVMH, the world's biggest luxury group, owns jewelers Fred and Chaumet as well as watchmakers Tag Heuer, Hublot and Zenith and is on the lookout for potential acquisitions.

PPR, which owns jeweler Boucheron and watch brands Girard-Perregaux and JeanRichard, has always said it wanted to make acquisitions in "hard luxury," namely watches and jewellery.

Both PPR and LVMH declined to comment, as did a spokeswoman for Harry Winston.

MINER, JEWELLER OR BOTH

While investors bought into Harry Winston stock in higher-than-normal volumes on Wednesday, some analysts were not as confident that a deal was in the works.

"I can't imagine that it would make any sense for the company just to sell a division outright," said Edward Sterck, an analyst with BMO Capital Markets. "Their shareholder base is holding Harry Winston for exposure to retail."

Sterck also noted that by owning both a stake in a diamond mine and a jewellery business, the company is able to shelter itself from volatile price fluctuations in the market.

Harry Winston, which started as a small jeweler in New York in 1924, was made famous by a reference in Marilyn Monroe's song "Diamonds Are a Girl's Best Friend." Every year the firm lends out hundreds of millions of dollars worth of jewels to be worn by actresses on the red carpet at events like the Oscars.

In addition to its luxury retail brand, Harry Winston also owns a 40 percent stake in the Diavik diamond mine in Canada's Northwest Territories. Rio Tinto (RIO.L) holds the remaining 60 percent.

Harry Winston has said it is looking for new opportunities to mine diamonds in northern Canada, leading to speculation that the company is in talks with Rio over its share of Diavik and BHP Billiton (BHP.AX) over its Ekati mine, also in Canada.

The Toronto-based miner last month posted lower quarterly profits and said luxury demand had slowed as consumers became more cautious due to the uncertainty in the global economy.

($1 = 0.7621 euros)

(Reporting by Astrid Wendlandt and Pascale Denis in Paris, and Julie Gordon in Toronto; Editing by Greg Mahlich and Phil Berlowitz)

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