In the case of New York jewelry (Tiffany & Co.) versus Swiss watches (Swatch), a Dutch arbitration court has ruled in favor of the Swiss, ordering Tiffany to pay nearly half a billion dollars in damages to Swatch, the companies announced Sunday afternoon. As a result of the punitive damages, Tiffany slashed its full-year fiscal 2013 outlook.
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The Netherlands Arbitration Institute ruled that Tiffany must pay Swatch $449 million as a result of a contractual dispute that arose as a result of a joint venture the two companies entered in 2007. The joint venture, which was supposed to last for 20 years and give Tiffany a better foothold in the watch world, began to fall apart in 2011 when Swatch cancelled its cooperation with Tiffany and claimed the jeweler was trying to block and delay the joint venture. Tiffany countersued, and in 2012 the case went into arbitration in the Netherlands, where the joint venture had been established.
“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,” Michael Kowalski, Tiffany chairman and CEO, said in a statement. He added that the company is reviewing its legal options and assured shareholders that “we do have sufficient financial resources to pay the full amount.”
The arbitration court ruling also requires Tiffany to pay two-thirds of the legal fees associated with the dispute, an amount that after various fees and currency conversions, comes out to $8.8 million.
Kowalski said that the after-tax impact of the settlement will fall somewhere between $295 and $305 million and will be reflected in Tiffany’s fourth fiscal quarter. While he also said that the penalty will not impact the company’s ability to execute its business plan in the long or short term, Tiffany did say that it will have an effect on its full year fiscal 2013 earnings. The jeweler cut its earnings guidance to a range of $2.30 to $2.35 per share, down from the $3.65 to $3.75 earnings-per-share guidance issued in its third quarter earnings report.
Tiffany shares were down a little over 2% in pre-market trading Monday morning and were poised to open around $88.60 per share, down from Friday’s closing price of $90.62. Year-to-date, the luxury jeweler has seen 53.8% growth.
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