Swatch takes majority stake in Dubai retailer Rivoli (updated)

Hengdeli Holdings

25/11/2013 11:41

* Swatch raises stake in Rivoli to 58 pct * Secures better control of image and stocks * Growing trend for luxury brands to take local control (Adds analyst comments, background, shares) By Silke Koltrowitz ZURICH, Nov 25 (Reuters) - Global watch group Swatch UHR.VX  has taken control of Dubai's Rivoli Investments, joining other luxury brands getting more directly involved in emerging markets to better develop image and sales while retaining local knowledge. Swatch Group raised its stake in the Dubai retail group to 58 percent, taking over Rivoli's network of outlets in the fast-growing Middle Eastern market. Under the deal, the Swiss watch maker bought an additional 18 percent of Rivoli from the private equity arm of Dubai Holding, owned by the emirate's ruler, via its subsidiary Technocorp Holding for an undisclosed amount, Swatch Group spokeswoman Beatrice Howald said on Monday.  ZKB analyst Patrik Schwendimann said he estimated the purchase price for the 18 percent stake at about 100 million Swiss francs ($110 million). Luxury goods groups have been increasing control of their retail networks in Asia, Russia and the Middle East by opening directly operated stores, buying back franchises and taking stakes in retail partners to maximise growth in these markets. By taking over operations in emerging markets, global brands can design stores, decide how their goods are displayed and marketed while also tapping into local knowledge to ensure they are in tune with customers' tastes.  Luxury brands that have bought out their retail partners include Gucci  PRTP.PA  Hermes  HRMS.PA  and Prada  1913.HK  in Russia and Burberry  BRBY.L  in China and Japan.  Under the deal announced on Monday, Swatch, the world's largest watch group, which makes Omega, Longines and Tissot watches in addition to the fashion watches which bear its name, will take control of Rivoli's network of over 360 retail businesses with over 1,500 employees in the Middle East.  The Middle East has been one of the fastest-growing markets for Swiss timepieces, at least partly making up for a slowdown in demand in China.  WATCH EXPORTS Swiss watch exports to the United Arab Emirates rose more than 13 percent in the 10 months to October, making it the tenth biggest market for Swiss timepieces. "We expect that higher integration into retail will provide Swatch with faster top line growth, better operating performance and return on invested capital improvement," Exane BNP Paribas analyst Luca Solca said in a note.  Vontobel's Rene Weber said sales of Rivoli would now be consolidated but would likely only add 1 percent to sales in 2014 as he estimated Rivoli was currently already doing 60 percent of its sales with Swatch Group brands. Dubai, helped by a rebound in its property market, is recovering from a debt crisis in 2009 when several of its state entities were forced to restructure debt and seek more time for repayment. But the emirate, facing debt repayments of about $50 billion over the next three years, has been getting serious about selling off assets to raise money.  ID:nL5N0F60D9   Reuters had reported in October that the private equity arm of Dubai Holding was in talks to sell the 18 percent stake in Rivoli to Saudi-based Al Rajhi Capital.  ID:nL5N0II2DK  Exane's Solca outlined in a research report that Swatch could follow the example of Italian premium eyewear maker Luxottica  LUX.MI , which increased its stake in Hengdeli Holdings  3389.HK , the biggest watch retailer in Greater China. Swatch Group already holds a 9 percent stake in Hong Kong-based Hengdeli. The world's biggest luxury goods group, LVMH  LVMH.PA , also has a 6.4 percent stake in Hengdeli. Solca said Swatch effectively had a 20.4 percent stake in the group if one took into account the 500 million Hengdeli shares mortgaged in favour of Swatch by Hengdeli Chairman Zhang Yuping to guarantee a personal loan he obtained from the watchmaker in 2011.     Swatch also has a 33 percent stake in Saudi-Arabian retailer Alzouman General Trading Co. Ltd. It has in recent years been pushing its own retail concepts by opening what it calls Tourbillon stores for its high-end brands, such as Breguet, Blancpain and Omega, and Hour Passion stores for its mid-range labels like Longines and Tissot. Shares in the watchmaker rose 0.8 percent at 1046 GMT, slightly ahead of the European personal and household goods index  .SXQP . ($1 = 0.9094 Swiss francs) (Additional reporting by Astrid Wendlandt in Paris; Editing by Patrick Graham and Giles Elgood) ((silke.koltrowitz@thomsonreuters.com)(+41 58 306 7454)(Reuters Messaging: silke.koltrowitz.thomsonreuters.com@reuters.net)) Keywords: SWATCH RIVOLI