Gemfields (LON:GEM) chief executive (CEO) Ian Harebottle today described the deal to buy Fabergé – one of the most iconic names in jewellery – as a no-brainer.
The coloured gemstone specialist this morning unveiled an £89 mln deal to acquire Fabergé, best known for its jewelled eggs, in an all-share transaction.
The move advances Gemfields’ mine-to-market strategy and gives it a big foothold in two of the most profitable segments of the industry – mining and consumer sales.
Harebottle said the deal would be “transformational” for Gemfields and that it was a shrewd decision for all concerned.
“From a business perspective it certainly makes a lot of sense,” the CEO said.
“You have Gemfields’ ability to create an aspirational component for our coloured stones at the very highest level, which we certainly believe will have a pull-on effect on all the production throughout the business.
“And from a Fabergé perspective, you have the opportunity to add value to their brand by guaranteed supply.
“What we don’t want is this season’s colour to be green and next red,” Harebottle continued.
“Diamonds have done a sterling job of going beyond that and we believe colour has the opportunity to do the same and to be perceived from a value perspective on a par with diamonds and this is part of the process of getting there.”
Gemfields is not alone in making high-end, luxury tie-ups. In fact the trend has been quite prevalent recently, with diamond company Harry Winston buying BHP Billiton’s Ekati mine in Canada and legendary jeweller Tiffany’s US$6 mln off-take loan for DiamondCorp’s (LON:DCP) Lace mine.
To pay for the ambitious purchase, Gemfields, which owns Kagem, the world’s largest emerald mine in Zambia, is issuing 214 mln new shares, or the equivalent of almost 40% of equity base.
The takeover will also see the unbundling of Rox, Gemfields’ largest shareholder at 59.1%, into its component investors.
As a result Brian Gilbertson’s Pallinghurst investment vehicle will become the company’s largest individual investor with just under half the shares.
Pallinghurst, which bought Fabergé from Unilever for US$38 mln in 2007, has invested over US$160 mln into cleaning up the Fabergé brand over the last five years.
Indeed, Harebottle has done the same for Gemfields.
Over the last four years, he has halved operating costs at Gemfields’ mines, doubled its output from Kagem and increased achievable prices of Zambian ethical emeralds more than tenfold.
As for striking more deals, Harebottle is adamant that this is a one-of-a-kind transaction.
“In terms of the branding, there can be only one ultra-exclusive luxury brand.
“But in terms of deals to acquire more gemstone deposits, yes, we’re constantly working on those so we would definitely look to get more out of the supply side of the business.
“As for the luxury, we’ve got this one, we want to position it as best we can and we definitely don’t want to do everything.”
Harebottle added that the response from independent shareholders, who will vote on the deal next month, was overwhelmingly supportive, with one comparing the deal to “one of the small car manufacturers acquiring Mercedes Benz”.
Fabergé, which generated just under US$7mn in sales last year, now trades through five boutiques in Geneva, London, New York and Hong Kong, and is planning to open two new stores a year over the next decade.
Gemfields shares lost 2p today to stand at 37p each.