Kay Jewelers Parent Signet to Buy Zale for $1.4 Billion

Zale Corp. and Signet Jewelers Ltd. – two big rivals in the mall-based jewelry business – said Wednesday they have agreed to merge.

Bermuda-based Signet, which operates the Kay and Jared chains, will pay $21 a share for Irving, Texas-based Zale. Signet’s offer, valued at $1.4 billion, is 41 percent above Zale’s closing price of $14.91 on Tuesday.

The combined companies will have annual sales of $6.2 billion and 3,600 stores. The jewelry business is still very fragmented in the U.S. Excluding acquisition costs, the combined companies are expected to be profitable in the first year.

Signet’s retired CEO, Terry Burman, joined Zale’s board last May as chairman. He tried to merge the companies once before, in the mid-2000s.

Golden Gate Capital, which provided Zale with badly needed cash a few years ago, is on board with the deal. Golden Gate owns 25 percent of Zale’s stock. Helping Zale avoid bankruptcy ended up being a good move and great investment for the San Francisco-based private equity firm. Golden Gate’s 11 million shares that it received as warrants will net it more than $200 million.

Zale’s shares jumped 40 percent, or $6.01, to close Wednesday at $20.92. Signet’s shares rose 18 percent, or $14.38, to end at $93.65.

After years of struggling, Zale CEO Theo Killion put a team together that turned around Zale, which also operates Gordon’s, Peoples and Mappins in Canada and Piercing Pagoda kiosks. Last year, Zale reported its first annual profit since 2008.

Killion’s turnaround was largely based on rebuilding Zale’s bridal-jewelry business with proprietary Celebration diamonds and the Vera Wang-branded collection.

Signet’s current CEO, Michael Barnes, said Zale will continue to run as a separate business under Killion, who will report to Barnes. Barnes is a former top executive at Fossil Inc. and succeeded Burman at Signet.

Barnes called out Zale’s strong wedding business during a conference call Wednesday morning. He also said that the plan is to continue to grow the Zale brand.

Signet operates more than 1,400 U.S. stores under the brand names of Kay Jewelers and Jared the Galleria of Jewelry, as well as stores in the U.K. Zale operates about 1,680 stores in North America.

The acquisition must be approved by Zale’s shareholders and clear antitrust hurdles.