Gitanjali Gems, a DTC Sightholder, has confirmed that it acquired a 97 percent stake in the U.S. jewelry chain, Samuels Jewelers, from funds managed by DDJ Capital Management at a cost of 2 billion rupees ($44.72 million).

 

Gitanjali expects the move will add 4.5 billion rupees ($100.63 million) to its turnover and 220 million rupees ($4.92 million) to its bottom line.

 

The acquisition is being financed through internal accruals and proceeds of the recently issued $110 million foreign currency convertible bonds (FCCBs).

 

According to reports in the Indian press, of the total consideration, $12 million would be paid in cash and the rest in the form of Gitanjali’s shares.

 

”Samuels is an ideal match to complement Gitanjali’s strengths in manufacturing diamonds and jewelry products,” said Gitanjali’s CFO, G.K. Nair.

 

Samuels filed for bankruptcy in Delaware in 2003. It operates 97 retail jewelry stores in 18 states throughout the United States. The company will remain headquartered in Austin, Texas.

 

Mehul Choksi, Gitanjali’s Chairman, said that, “Gitanjali is always seeking business opportunities which are consistent with its philosophy of adding incremental value at every level of the supply chain, thus ensuring greater shareholder value and bottom line profits.”

 

Samuels’ president and CEO, Randy McCullough added, “Samuels is excited to have Gitanjali as a majority shareholder and vendor partner. We look forward to working with Gitanjali and see this transaction as a tremendous opportunity for expanded market share and future growth.”

 

Gitanjali is one of the largest integrated diamond and jewelry manufacturers and retailers in India. According to a Gitanjali spokesperson, there will be a planned expansion of the Samuels store network, with a per store initial capital investment of 20.7 million rupees ($462,900) and a 54 million rupees ($1.2 million) initial inventory.

 

The aim will be to increase store sales and improve margins over the next 24 months. Some of the new steps that are envisaged include enhancing the variety of merchandise available, increasing sourcing from global vendors, and raising sales on credit through an in-house credit program.

 

A joint Strategic and Integration Committee is being set up to complete a joint synergy analysis with a view to maintaining a robust capital structure and financial flexibility in operations.

 

This is one of the first major acquisitions by an Indian company in the U.S. jewelry market. However, Gitanjali’s takeover of Samuels comes against the backdrop of a larger trend of acquisitions of international businesses by Indian companies.

 

According to estimates by business analysts quoted in the Indian press, the value of overseas acquisitions which was about $4.5 billion in 2005 (itself a significant increase over the previous year’s level of approximately $2 billion), is expected to surpass $10 billion in 2006, without accounting for the yet-to-be concluded bid by Tata Steel for Anglo-Dutch steelmaker Corus, which if successful, will be the largest foreign takeover by an Indian company.