Tiffany To Pay Swatch Group Damages Of $450 Mln, Slashes 2013 Outlook

(RTTNews) - Luxury jeweler Tiffany & Co. (TIF) late Sunday said it has been ordered by the Netherlands Arbitration Institute or NAI, to pay Swiss watchmaker Swatch Group AG (SWGAY, SWGAF) a total of 402.7 million Swiss Francs or about $450 million plus interest as damages related to a failed long-term cooperation agreement signed in December 2007. Tiffany was charged of continued breaches of its obligations and duties under the agreement.

"We were shocked and extremely disappointed with the decision of the majority of the arbitral panel. We firmly believe the panel's ruling is not supported by the facts of this case or the various agreements between the Swatch parties and the Tiffany parties," Chairman and CEO Michael Kowalski said in a statement.

The New York-based world's second-largest luxury-jewelry retailer is also required to pay two-thirds of the costs of the arbitration amounting to about 0.6 million euros or about $0.8 million, and two-thirds of the reasonable legal fees, expenses and other costs incurred by the Swatch amounting to about $8.8 million.

Tiffany noted that it is reviewing options with its legal counsel, but added that it will assure that it has sufficient financial resources to pay the full amount. The company added that the award will see it recording a charge of about $295 million to 305 million in the fourth quarter.

Tiffany said it intends to fund that payment of damages from immediately available cash on hand and funds available under its existing debt facilities.

The company added the recording of charges will see its full-year 2013 earnings guidance being slashed by about 60 percent or $2.30 to $2.35 per share from the previous forecast issued on November 26 in a range of $3.65 to $3.75 per share, implying a current full-year guidance in the range of $1.35 to $1.40 per share.

On average, 27 analysts polled by Thomson Reuters currently expects the company to report earnings of $3.78 per share for the fiscal 2013. Analysts' estimates typically exclude special items.

Tiffany said the awarded reflects only about 8.8 percent of the total amount of 3.8 billion francs or $4.2 billion, claimed as damages by the Swatch. The joint venture agreements were deemed terminated by the arbitral award as of March 1, 2013.

Swatch had officially terminated the joint venture with Tiffany in September 2011, citing material breach of contract and pressed claims for damages in December 2011 against Tiffany. In March 2012, Tiffany filed a counterclaim of 541.9 million francs with the Court of arbitration in charge. However, the counter-claim of Tiffany was integrally dismissed after being vigorously contested by Swatch as having no factual or legal basis.

Swatch said it invested millions to develop, distribute and sell the Tiffany brand watches through its own stores and its worldwide network of independent retailers based on the long-term commitments.

Swatch had earlier stated that the action was necessary after Tiffany's systematic efforts to block and delay development of the business under the joint venture. It pressed claims for damages against Tiffany to compensate for the loss of planned long-term future business.

In December 2007, Swatch and Tiffany announced a strategic alliance to further the development, production and worldwide distribution of Tiffany brand watches. The two companies were to collaborate on design, engineering, manufacturing, marketing, distribution and service.

TIF closed Friday's regular trading session at $90.62, up $0.19 or 0.21% on a volume of 1.08 million shares.