Tiffany Ordered to Pay $449 Million in Swatch Dispute

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Tiffany Atlas watch, made by Tiffany Watch Co., the now defunct joint venture between Tiffany & Co. and Swatch Group

Tiffany Atlas watch, made by Tiffany Watch Co., the now defunct joint venture between Tiffany & Co. and Swatch Group

Rotterdam, Netherlands—After the surprise announcement this weekend by the Netherlands Arbitration Institute (NAI) that Tiffany & Co. will have to pay nearly $500 million to Swatch Group AG over a breach of contract legal dispute in their former joint venture, the U.S. jeweler said it is reviewing its options with legal counsel and declined to say if it would appeal the ruling.

The dispute arose in 2011 when Swatch Group claimed that Tiffany used “systematic efforts to block and delay development of the business.” Meanwhile Tiffany countersued, alleging that Swatch failed to honor the terms of the agreement, including providing adequate distribution.

Tiffany Cuts Full Year Forecast

While ordering Tiffany to pay an arbitration award of about 402 million Swiss francs (about $449 million) to Swatch Group AG, NAI also dismissed Tiffany’s counterclaim. Payment of the award is due immediately as well as interest dating back to June 2012.

“We were shocked and extremely disappointed by the decision of the arbitral panel,” said Michael Kowalski, Tiffany’s chief executive, who noted that the jewelry retailer has has sufficient financial resources to pay the damages and that it won’t affect the company’s ability to execute its business plans.

However, Tiffany noted that the award will see it recording a charge of about $295 million to $305 million in its fourth quarter.

Due to the recording of charges Tiffany cuts its full year earnings forecast by some 60% or $2.30 to $2.35 a share from the previous forecast issued on Nov. 26 in a range of $3.65 to $3.75 a share, which would result in a full-year guidance in the range of $1.35 to $1.40 a share. Analysts’ average estimate expects $3.78 a share.

While the award is huge, Tiffany noted that it accounts for only about 8.8% of the total amount of 3.8 billion francs or $4.2 billion, claimed as damages by Swatch.

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

Meanwhile, Swatch, the world’s largest watchmaker, is going forward with its own plans to expand into the international jewelry market. Last January, Swatch announced it would purchase Harry Winston for $1 billion, filling the gap left by the end of its joint venture with Tiffany.

“This is great news for Swatch,” said Luca Solca, an analyst at Exane BNP Paribas. “The amount to be paid is not immaterial and it clears a question mark on the stock.