In another move representing compression of the diamond distribution pipeline, producer Aber Diamond Corp.— which already holds a majority stake in high-end jeweler Harry Winston—announced it has reached an agreement to purchase the minority shareholders' interest in the company for approximately $157 million, giving it 100-percent ownership.

The powerful combination of mining and jewelry retailing operations has already been successful in driving revenue and profitability growth, the company said in a media release. And full ownership will enable it to move ahead quickly with expansion plans for the carriage trade jeweler.

“We are now able to expand at a pace consistent with the opportunities of the marketplace,” said Thomas O'Neill, Aber's president and CEO of Harry Winston. “This enables us to open new stores at an aggressive pace, as well as refurbish our existing store network.”

“We plan to strengthen our product development, increase our manufacturing capabilities, and improve management efficiencies across the businesses,” he added.

The renowned jeweler, established in 1932, has a history that includes some of the most legendary jewels in the world, including the Hope Diamond. Royalty, celebrities and heads of state have all been adorned with Harry Winston jewelry.

In April 2004, Aber purchased an initial 51-percent stake in the company for $85 million and has since increased its equity interest to about 53 percent. The original purchase agreement gave Aber an option to purchase the balance of Harry Winston in 2010.

“The past two and half years have demonstrated the tangible benefits of linking the marketing of rough diamonds to a high-end diamond retailer in the form of improved margins at both ends of the business,” said Robert Gannicott, chairman and CEO of Aber. “This acquisition solidifies our position as the world's premier publicly traded diamond company.”

Aber said the move gives it a stronger strategic position as a diamond company comprised of the two most profitable segments of the business—mining and retail. By holding these positions in the diamond pipeline, the company said it can deliver premium rough diamond pricing through market insight provided by polished diamond buying.

Aber has been able to leverage its role as a supplier to secure a more reliable source of high-quality polished diamonds for Harry Winston. The retailer's sales have grown from about $128 million in fiscal year 2004 to $191 million in fiscal year 2006. Additionally, management has seen improved margins and operational performance, contributing to Aber's net earnings sooner than planned. The company recently reported record sales of $34.3 million for the second quarter.

“The market for luxury goods, including diamond jewelry, is one of the fastest-growing segments of the consumer market,” said O'Neill. “We believe that, given the recognition of the brand relative to the size of the store network, there is an opportunity for significant growth.”

Gannicott noted that Harry Winston has exceeded Aber's initial expectations and that the timing and terms of the deal allow the company's shareholders to benefit earlier from the growth of the retailer.

On an equity basis, the transaction puts Harry Winston's value at approximately $330 million. Aber said it will finance the acquisition through cash resources and an increase to Aber's existing credit facility. The company said the increase would not affect existing dividend policy.

The acquisition and the expanded credit facility are expected to close by the end of this month. Aber was advised on the transaction by Rothschild in London and Washington.

Source : Nationaljeweler.com

www.nationaljeweler.com