Tiffany ordered to pay Swatch $449m in damages

Monday 23 December 2013 16.26
Tiffany cuts its profit outlook for the year
Tiffany cuts its profit outlook for the year

Tiffany & Co has said a Dutch arbitration court ruled that it must pay Swatch Group 402 million Swiss francs ($449m) in damages over their failed joint venture to produce and market watches.

As a result, the New York-based jeweller slashed its profit outlook for the year.

Swatch, the world's largest watchmaker, and Tiffany, a New York-based jeweller, had struck an agreement in 2007 to develop watches under the Tiffany brand together.

The arrangement, intended to last for 20 years and give Tiffany a much bigger place in the luxury watch market, never turned into big business for either company, and the deal ended in acrimony in 2011.

The companies sued one another in arbitration court in the Netherlands, where their Tiffany Watch Co joint venture was domiciled. The case want to arbitration in 2012.

Michael Kowalski, the chief executive of the luxury retailer, said in a statement that he was "shocked and extremely disappointed" with the court ruling, adding that the company was reviewing its options.

In their lawsuits, Swatch Group had faulted Tiffany for "systematic efforts to block and delay development of the business," while Tiffany had said that Swatch did not honour the terms of the agreement, including providing adequate distribution.

Kowalski said Tiffany had sufficient financial resources to pay the full amount of damages. Tiffany said it would fund the award from immediately available cash on hand and funds from existing debt facilities, and that it did not expect the ruling to impact its short or long-term business plans.

For Tiffany, the dissolution of the deal with Swatch was a huge setback in its efforts to once again be a big player in the world of luxury watches.

The company only gets about 1% of sales from watches now, compared to about 9% in the late 1980s. That shrank as the company decided to focus more on its engagement jewellery business.

Kowalski said in a statement that Tiffany is moving forward with its plans to design, produce, market and distribute its own Tiffany & Co brand watches.

Tiffany's said it would record a fourth-quarter charge of $295m to $305m as a result of the ruling. It lowered its full-year earnings outlook range to $2.30 a share to $2.35 a share from a previous estimate of $3.65 a share to $3.75 a share.