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Associated Press
A Zales jewelry store worker looks at watches in San Bruno, Calif. Signet Jewelers is buying Zale Corp. in a nearly $900 million deal to help diversify its business. Shares of Zale soared more than 39 percent Wednesday.

Jared, Kay parent buys Zales

$900 million deal reflects recession, tougher competition

– All the single ladies: Put your hands up.

The largest U.S. jewelry chain on Wednesday decided to put a ring on its much smaller rival, creating a $6 billion jewelry juggernaut with expansive reach in North America.

Signet Jewelers, owner of Jared with its “He went to Jared” slogan, and Kay Jeweler with its “Every Kiss Begins with Kay” ads, agreed to buy Zale for roughly $900 million.

Turns out, diamonds aren’t just a girl’s proverbial best friend; investors seemed to like them, too. On news of the planned acquisition, Signet’s stock rose more than 18 percent Wednesday, while shares of Zale, which has a store in Fort Wayne’s Glenbrook Square, soared more than 40 percent.

The deal underscores the harsh realities of the $32.8 billion jewelry business since the Great Recession. Sales of necklaces, rings and other jewels got hammered during the economic downturn as shoppers pulled back on their discretionary purchases.

Now, business is slowly starting to come back during the economic recovery. But there are still a number of jewelry chains in the market, and sales are still far from their pre-recession peak of more than $36 billion in 2006.

“The deal is a rational response to the imbalance of supply and demand,” said Craig Johnson, president of Customer Growth Partners, a retail consultancy in New Canaan, Conn. “There are too many stores chasing too few jewelry buyers.”

In fact, analysts say the abundance of stores is a scenario that has played out in malls across the country where some of Signet’s stores go head-to-head with Zale’s Zales-branded stores. But they say Signet has fared better.

Signet has 1,400 Jared and Kay stores in the U.S. and 500 stores in the U.K. under the names H. Samuel and Ernest Jones.

Signet Jewelers Ltd., which is based in Bermuda, reported that revenue at stores open at least a year rose 5 percent in November and December combined. By division, the sales metric at Kay, which has tried attracting customers by creating exclusive collections, rose 5.6 percent. Jared sales were up 5.6 percent during that period.

On the other hand, Dallas-based Zale Corp. has 1,680 stores in North America under Zales, Gordon’s and other names. The company, which went through a liquidity crisis in 2009, has closed hundreds of stores and has been trying to expand its bridal merchandise.

Zale returned to a profit in its most recent fiscal year, which ended July 31. More recently, the company reported its sales at stores open at least one year rose 2 percent in November and December. Zales-branded stores had a 4.4 percent increase for the two-month period.

As part of the deal, Signet said it will pay $21 per share for Zale. That’s a 41 percent premium to Zale’s $14.91 Tuesday closing price.

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