Swatch Group, Tiffany form watch alliance

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Swatch Group, Tiffany form watch alliance

December 03, 2007

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New York—The Swatch Group Ltd. and Tiffany and Co. announced today a strategic alliance to further the development, production and worldwide distribution of Tiffany-brand watches.

Under the agreements, Swatch Group will incorporate a new watch-making company in Switzerland, which will be authorized to use Tiffany's trademarks and operate under the Tiffany name. The watch company will be wholly owned by Swatch Group.

Tiffany will participate in the watch company's before-tax profits and in its governance, through one seat on its board of five directors and seats on both the product design and marketing committees.

Many of Tiffany's notable watch designs will be continued and new designs will be added.

The distribution of the new watches will be made through the Swatch Group distribution network (Swatch group affiliates, Swatch Group retail facilities and third-party distributors), as well as through Tiffany stores. In addition, Swatch Group affiliates will have the right to establish and operate Tiffany and Co. watch stores in certain markets outside the United States. The watch stores might also offer a targeted selection of Tiffany jewelry.

Michael J. Kowalski, chairman and chief executive officer of Tiffany and Co., said the alliance will place Tiffany within the distinguished collection of luxury watch brands manufactured and distributed by the Swatch Group.

"Nick Hayek Jr. and I began discussing possible collaboration between our two companies over a year ago, and I am delighted that these discussions have led to this historic agreement," Kowalski said in a media release. "Swatch Group is the best conceivable strategic partner for Tiffany's long-planned re-entry into watch distribution. It is the leader in the high-end watch business with unparalleled distribution capabilities and experience in the luxury segment of the watch business."

Nick Hayek Jr., chief executive officer and president of the group management board of The Swatch Group Ltd., confirmed that the two companies will collaborate on design, engineering, manufacturing, marketing, distribution and service.

"In consequence, we fully expect to see Tiffany and Co. strengthen its position among the best known and most respected watch brands worldwide," he said in a media release.

Tiffany filed a Report on Form 8-K with the U.S. Securities and Exchange Commission that says as a consequence of the strategic alliance with Swatch Group, Tiffany will discontinue certain watch collections. Consequently, Tiffany expects to record in its fourth quarter ending Jan. 31, 2008, a pre-tax expense of $20 million associated with its inventory of the watches to be discontinued. The expense was not included in the financial expectations for fiscal 2007 that Tiffany reported in its Nov. 30 press release announcing its unaudited financial results for third quarter ended Oct. 31.

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