Zale (ZLC) Ticks Higher as M&A Chatter Heats Up
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Shares of Zale Corp. (NYSE: ZLC) are trading higher Thursday following reports that it might now be a juicy acquisition target.
According to Reuters and other data, Zale has made impressive strides in the past few years to cut costs, closing unprofitable shops, and adding stronger brands like Vera Wang to its lineup.
Reuters then points to Signet Jewelers (NYSE: SIG), which sees its Kay and Jared businesses throwing off cash and stealing business from Zale. Also, Signet owns its own credit card business, something Zale has yet to do.
So what's left? Well, investors might be betting on a combination of the two through a mutual merger or Signet picking up Zale on the cheap.
Zale's current market cap is about $94 million at its current $3 trading level, though long-term liabilities of $494 million cast a shadow over the operation. Signet might be able to get away with paying $5 to $6 per share, with the deal still adding to earnings in its first year.
In addition, Signet would be able to close about 230 stores out of 1,160 total, with leases set to expire within a year. That would eliminate tons overlap between the two.
Key points in Signet making a bid for Zale include its U.S. presence, Canadian assets, and cheap price tag. Otherwise, some mull Signet being better off focusing more on organic growth rather than trying to acquire a work in progress.
Neither of the companies commented today. Shares of Zale are up 7 percent early, while Signet is up 1 percent.
According to Reuters and other data, Zale has made impressive strides in the past few years to cut costs, closing unprofitable shops, and adding stronger brands like Vera Wang to its lineup.
Reuters then points to Signet Jewelers (NYSE: SIG), which sees its Kay and Jared businesses throwing off cash and stealing business from Zale. Also, Signet owns its own credit card business, something Zale has yet to do.
So what's left? Well, investors might be betting on a combination of the two through a mutual merger or Signet picking up Zale on the cheap.
Zale's current market cap is about $94 million at its current $3 trading level, though long-term liabilities of $494 million cast a shadow over the operation. Signet might be able to get away with paying $5 to $6 per share, with the deal still adding to earnings in its first year.
In addition, Signet would be able to close about 230 stores out of 1,160 total, with leases set to expire within a year. That would eliminate tons overlap between the two.
Key points in Signet making a bid for Zale include its U.S. presence, Canadian assets, and cheap price tag. Otherwise, some mull Signet being better off focusing more on organic growth rather than trying to acquire a work in progress.
Neither of the companies commented today. Shares of Zale are up 7 percent early, while Signet is up 1 percent.
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