Zale Rejects Latest Peoples Offer, Plans Inventory Writedown
DALLAS (AP) _ Zale Corp. officials have rejected a takeover offer from Peoples Jewellers Ltd. of Canada for the second time and announced a major restructuring for the largest U.S. jewelry retailer.
″There was nothing right about it. The price was wrong. The time was wrong and the buyer was wrong,″ Donald Zale, chairman and chief executive officer, said in a statement.
The buyout proposal was rejected Sunday at a meeting of Zale’s board of directors. They also approved the restructuring proposal, which includes cutting the book value of the company’s’ inventory by $80 million to $90 million.
Toronto-based Peoples, which holds a 15 percent stake in Dallas-based Zale had offered $38 a share in cash and a new issue of preferred stock with a face value of $7 a share.
The first offer, which was rejected earlier this month, was for $35 per share in cash and preferred stock valued at $5 a share.
Dolph B.H. Simon, senior vice president and general counsel for Zale, said Peoples holds 1.8 million of 12.5 million shares outstanding.
″We’re absolutely opposed to a sale to Peoples for that price on those terms at this time,″ Simon said.
Peoples president Irving R. Gerstein, however, said the rejection was unusual in light of Zale’s financial performance and its current creditwatch status announced by Standard & Poor’s Corp. earlier this month.
Zale’s profit peaked in 1980 with earnings of $54 million. Its profit for the year ended March 31, 1985 was $38.8 million on sales of $1 billion. By comparison, Peoples’ 1985 net income was $5.5 million on sales of $127.9 million.
Simon said Zale will record a loss for the current fiscal year, which ends March 31, but he declined to speculate on the size of that loss.
The company’s restructuring also includes plans to sell two American units: the Aeroplex Division, which operates 90 newstand shops at airport and hotel locations and the O.G. Wilson Catalog Showroom Division, which consists of 13 retailing units offering an assortment of non-jewelry merchandise.
Simon said Zale also will eventually divest 200 European retail outlets and concentrate on its 1,200 U.S. stores.
In recent years, the 62-year-old family-run business has embarked on a strategy to change its image from ″the diamond place″ to a jewelry retailer with a broader appeal.
The Zale chain, founded by the Zale family in Wichita Falls, is attractive to Peoples, because the Canadian jeweler has ″run out of room,″ according to its president.
The familes of Zale family and president Bruce Lipshy control about 32 percent of the company’s outstanding shares.