As the jewelry market in the U.S. is still recovering from the recession, the news of Signet Jewelers Limited (NYSE: SIG) acquiring Zale Corporation (NYSE: ZLC) pushed up the shares of the former by 5.8%, as of today.
Moreover, the company hit a 52-week high of $99.50 on the last trading day, meeting the Zacks Consensus average analyst price target. However, it eventually closed at $99.04, amassing a return of 64.3% over the past one year.
As per the agreement between the two companies, Signet will acquire all of Zale's outstanding shares at $21 each by cash. The acquisition would result in combined sales of $6.2 billion generated from approximately 3,600 retail outlets and annual synergies of roughly $100 million within the three fiscal years, resulting from operational efficiencies.
This transaction valued at $1.4 billion will be financed via bank debt, other debt financing and the securitization of a considerable part of Signet's accounts receivable. Post-acquisition, Zale will continue to be spearheaded by its current CEO, Theo Killion, who will report to Mike Barnes, the CEO of Signet.
Signet also performed well this holiday season, as it registered a comparable-store sales growth of 5% during the period, on the back of robust results from the company's U.K. and ecommerce segments. The company operates more than 1,400 U.S. outlets under the brand names Kay Jewelers and Jared The Galleria of Jewelry, whereas its U.K. division operates about 500 outlets under the brand names H.Samuel and Ernest Jones.
Currently, Signet holds a Zacks Rank #4 (Sell), as the U.S. economy is still picking up post recession. The company trades at a forward P/E of 19.0x, a 7.2% discount to the peer group average of 20.47x. Average volume of shares traded over the last 3 months stands at approximately 1,388.8K. Also, Signet's long-term EPS growth rate is 8%, reflecting optimism about the company.
Apart from Signet, retailers like The Walt Disney Co. (NYSE: DIS) and Foot Locker, Inc. (NYSE: FL) achieved 52-week highs of $83.65 and $46.80, respectively on Mar 7, 2014.
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