Signet Jewelers to acquire Zales Jewelers for $690 million in deal worth $1.4 billion

The deal means that Signet, whose U.S. retail brands include Kay Jewelers, Jared the Galleria of Jewelry and regional stores such as J.B. Robinson, will own six of the most recognizable brands in the U.S., the United Kingdom and Canada in a single massive company with combined sales of $6.2 billion.

The deal still must be approved by shareholders and regulators and is subject to other closing conditions.

View full sizeSignet Jewelers Ltd., the largest jewelry retailer in the U.S. and the United Kingdom, announced a deal to acquire Zale Corp., parent company of Zales Jewelers, for $21 per share.Paul Sakuma, Associated Press file

 Signet said their enhanced operating capabilities are expected to generate about $100 million in synergies within the first three years, and contribute in the high, single-digit percentages to profits within the first fiscal year, excluding the costs of the transaction.

Signet also expects the stronger financial profile of the combined company to achieve an investment grade rating on its stock.

Signet is headquartered in Hamilton, Bermuda, but its U.S. operations are based in Akron. Besides its 1,400 U.S. stores, Signet is also the largest jewelry retailer in the U.K., where it operates about 500 H.Samuel and Ernest Jones stores.

Zale, based in Irving, Texas, operates 1,680 stores in the U.S., Canada and Puerto Rico, including Zales Jewelers, Zales Outlet, Gordon's Jewelers, People's Jewellers and Mappins Jewellers in Canada, and Piercing Pagoda kiosks. It has has four stores in Greater Cleveland, including locations in Richmond Town Square in Richmond Heights, Great Lakes Mall in Mentor, Midway Mall in Elyria, and Zales Outlet at Aurora Premium Outlets in Aurora.

"This transformational acquisition further diversifies our businesses and extends our international footprint, opening the door to greater growth and innovation across the enterprise," said Signet Chief Executive Mike Barnes, in a statement announcing the acquisition. "The addition of Zale to the Signet family is consistent with our long-term growth strategy and leverages our combined operating expertise to create better choices for our customers, new opportunities for our employees, and makes us a more attractive partner to our vendors. In addition, it allows us to better optimize our balance sheet, creating long-term value for our shareholders."

"We are excited about the prospects for the combined company and the many opportunities that this creates for our future. I am happy to say it is our intention that Zale will continue to run under current leader CEO, Theo Killion, who would report directly to me after the transaction closes."

Killion said in the same written statement that "Having successfully completed our multi-year turnaround program to return to profitability, Signet's operating strengths will enable us to accelerate Zale's performance improvement for the benefit of our current and future guests."

Signet's offer is a 41 percent premium over Zale's closing price of $14.94 on Tuesday, Feb. 18. The agreement includes Signet entering into a voting and support agreement with Golden Gate Capital, which owns about 22 percent of Zale's common stock.

Signet said the acquisition will be financed through bank debt, other debt financing and the "securitization of a significant portion of Signet's accounts receivable portfolio."

J.P. Morgan Securities LLC acted as exclusive financial advisor; J.P. Morgan Chase Bank, N.A. committed to provide bridge financing for the transaction; and Weil, Gotshal & Manges LLP acted as legal counsel to Signet.

BofA Merrill Lynch acted as exclusive financial advisor to Zale, and Cravath, Swaine & Moore LLP acted as legal counsel to Zale in connection with the transaction.