September 12, 2011 / 11:22 AM / in 6 years

Swatch ends contentious deal with Tiffany

ZURICH/NEW YORK (Reuters) - Swatch Group UHR.VX has ended its alliance with Tiffany & Co (TIF.N), accusing the high-end U.S. jeweler of undermining efforts to promote the watches sold in their joint venture.

Swatch Group, the world’s largest watchmaker, said in a statement on Monday that it would sue for damages to make up for lost future sales, faulting Tiffany for “systematic efforts to block and delay development of the business.”

Tiffany countered in a statement that Swatch has not honored the terms of the agreement, including providing adequate distribution, and has been unwilling to work cooperatively with Tiffany.

The result has been “that our current business forecasts do not include any meaningful increase in watch sales or royalty income,” Tiffany said, adding that it expected to be vindicated during arbitration proceedings over the matter.

Swatch Group CEO Nick Hayek later disputed that claim to royalties, telling Reuters that the deal was not a licensing agreement.

The contretemps follows months of volleys between the companies, suggesting their venture was in jeopardy.

“They’re not used to having a license arrangement where they can’t make 100 percent of the decisions without possibly stopping for approval along the way,” James Fernandez said in June when he was Tiffany’s chief financial officer. He has since been made chief operating officer.

Swatch said in its statement that it would give Tiffany Watch Co, their joint venture, two years to wind down.

Swatch’s Hayek told Reuters he was not interested in pursuing similar deals with other companies in the future.

“We do not need that. We are focusing on the development of our own brands,” Hayek said.

Swatch Group shares finished the day down 0.1 percent, while Tiffany shares were up 2 percent in late afternoon trade.

NO LOVE LOST

In March, Swatch told Reuters that Tiffany was not giving watches sold under their Tiffany Watch Co venture, set up in 2007 to produce Swiss-made watches under the Tiffany brand, enough prominence in its stores.

The strategic alliance, signed for an initial term of 20 years, was meant to boost the development, production and worldwide distribution of Tiffany branded watches, and several watch collections have since been launched.

    But the deal never turned into big business for either company.

    According to Tiffany’s most recent annual report, the deal with Swatch represented less than 1 percent of sales.

    Vontobel analyst Rene Weber said he estimated Tiffany watch sales at about 30 million Swiss francs in 2010. “There was a potential of 300-400 million francs,” he said.

    Tiffany reported last quarter that high end jewelry sales were soaring, even as sales of moderately priced jewelry made with silver slowed.

    That has made mid-tier watch sales less crucial, an analyst said.

    “Tiffany rightly so is focused on their jewelry business,” said Morningstar analyst Paul Swinand. “For both of these companies, this is a distraction.”

    ($1=0.883 Swiss Francs)

    Reporting by Silke Koltrowitz in Zurich and Phil Wahba in New York. Additional reporting by Brad Dorfman in Chicago, editing by Mike Nesbit, Dave Zimmerman and Bernard Orr

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