* Acquisition includes $750 mln in cash, $250 mln net debt
* Mining arm renamed Dominion Diamond Corporation
* Swatch CEO says sales could top 9 bln Swiss francs in 2013
* Harry Winston made famous by Marilyn Monroe
By Silke Koltrowitz
ZURICH, Jan 14 Jeweller Harry Winston is
selling its high-end watches-to-necklaces division to Swatch
, in a $750 million cash deal that expands the Swiss
watchmaker's luxury offering and lets the Canadian group
concentrate on its diamond mines.
Monday's deal reverses a 2004 acquisition which turned the
mining group that discovered Canada's Diavik deposit - now
controlled by Rio Tinto - into a miner and jeweller.
The original mining arm is renamed Dominion Diamond
Corporation after the sale of Harry Winston, which started as a
small jeweller in New York in 1924 and rapidly became a
favourite with movie stars.
For Swatch, the deal is evidence of the benefits of strong
Asian demand for watches, handbags and other high-end items that
has given companies the firepower to expand their portfolio.
Harry Winston - which Marilyn Monroe mentioned in her song
"Diamonds are a girl's best friend" - has the potential to
generate more than 1 billion Swiss francs ($1.10 billion) in
sales and 250 million net profit in about 4-5 years, Swatch's
chief executive Nick Hayek said.
A 20-25 percent net profit margin was in line with group
profitability, Hayek told Reuters in an interview. "If watches
continue to grow as dynamically as in 2012, 9 billion franc
sales are within reach in 2013. Now in view of this acquisition,
it can of course be even more," he said.
Swatch Group is already the world's biggest watchmaker by
sales, with 8.1 billion francs sales in 2012 thanks to brands
such as Omega. Buying Harry Winston allows it to enter high-end
jewellery, a market dominated by Richemont with its
flagship brand Cartier.
The mining arm and the jeweller will continue to work
together through a diamond sourcing deal under Monday's
purchase, which includes Swatch taking on $250 million of debt.
The two companies will also consider opportunities for a joint
diamond polishing venture.
"From a strategic perspective it is positive - Swatch Group
has long said it wanted to expand in jewellery," Kepler Capital
Markets analyst Jon Cox said. "At first glance it does not look
cheap, but that is probably more a reflection of the
profitability of Harry Winston at this stage, which is in
ramp-up stage in terms of expansion."
Reuters reported in October last year that Harry Winston was
considering splitting off and selling its watch and jewellery
business. At the time, analysts put the value at around $770
million, but said they expected a premium, comparing the deal
with the acquisition of jeweller Bulgari by the world's biggest
luxury goods group LVMH for $5.2 billion in 2011.
"We estimate an enterprise value to EBITDA (earnings before
interest, tax, depreciation and amortisation) of 23x, which
looks expensive but already LVMH paid 21x for Bulgari," Vontobel
analyst Rene Weber said.
"For Swatch Group we consider this as a positive move as it
fills the gap in the high-end jewellery watch brand after the
disaster with Tiffany. And it is also a positive move as Swatch
Group can use its cash of 2 billion francs," he said.
Swatch Group ended a partnership with jeweller Tiffany in
Shares in Swatch Group were up 4 percent at 0957 GMT,
outperforming a 1.5 percent rise in the sector index.
RED CARPET EVENTS
"The Harry Winston brand now has a new home that can provide
the skills and support that it deserves to realize its true
potential," said Robert A. Gannicott, chairman of the board and
chief executive of Harry Winston Diamond Corp.
For the mining arm, this will focusing on becoming one of a
handful of pure-play diamond companies at a time when the gems
are increasingly scarce and prices are expected to rise.
Harry Winston bought BHP Billiton's EKATI
diamond mine in November for $500 million, betting on rising
prices. Its partner in Diavik, mining giant Rio, is also
reviewing its involvement in diamonds and could sell operations
which include Diavik and the Argyle mine in Australia, famous
for its pink diamonds.
Harry Winston was made famous by Marilyn Monroe's reference
in the film "Gentlemen Prefer Blondes". Every year the firm
lends out hundreds of millions of dollars' worth of jewels to be
worn by movie stars at events like the Oscars.
Mergers and acquisitions in the watchmaking industry have
also been boosted by Swatch Group's decision to cut back on
watch component and movement deliveries, forcing peers to
improve their access to watchmaking know-how.
Swatch Group itself has bought more than a dozen component
makers over the last 10 years, its most recent buys being watch
case maker Simon & Membrez and a 60 percent stake in case
polisher Termiboites last year.
The last watchmakers it took over were high-end brands
Glashuette Original and Jaquet Droz in 2000.
Rothschild advised Harry Winston on the transaction.($1 =
0.9123 Swiss francs)