* Acquisition includes $750 mln in cash, $250 mln net debt
* Mining arm renamed Dominion Diamond Corporation
* Deal seen as reasonably priced, Swatch shares rise 3 pct
* 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
Group 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 Harry
Winston, the group that discovered what became Canada's Diavik
diamond mine - now controlled by Rio Tinto - into a
miner and jeweller.
The original mining arm is renamed Dominion Diamond
Corporation after the sale of the Harry Winston luxury business,
which started as a small jeweller in New York in 1932 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
chief executive Nick Hayek told Reuters in an interview.
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.
"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," said Hayek.
For the group, which is best known for its colourful Swatch
plastic watches, the deal marks a new attempt to get a foothold
in high-end jewellery. Its partnership with U.S. jeweller
Tiffany ended in 2011 with the companies suing each
Swatch Group and Dominion Diamond Corporation 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.
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.
Its strong position in the U.S. and Japanese markets is a
draw for Swatch Group, Hayek said, adding that he also saw a lot
of potential for the brand in Europe.
Citi analysts said they expected earnings before interest,
tax, depreciation and amortisation (EBITDA) at Harry Winston's
luxury unit to rise to 15 percent in the full year ending in
January 2014 from 8 percent two years earlier, implying an
enterprise value to EBITDA ratio of 13.5 percent.
"(This) appears to be reasonable compared to recent deals in
the sector," Citi's Thomas Chauvet said in a study, noting that
LVMH acquired Bulgari in March 2011 at a far higher multiple.
Vontobel's Rene Weber called the purchase "a great fit for a
high price". Under Swatch Group's ownership, the share of
watches at Harry Winston should rise to 40-45 percent from about
25 percent currently and profitability should increase, he said.
Shares in Swatch Group were up 3.7 percent at 1307 GMT,
outperforming the sector index which was little changed.
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 mean 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.
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
Rothschild advised Harry Winston on the transaction.($1 =
0.9123 Swiss francs)