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Tiffany Files Counter-Claim In Legal Spat With Swatch

03/12/2012 | 12:20pm US/Eastern
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-- Swatch Chairwoman Nayla Hayek declines to comment on legal dispute

-- Hayek expresses disappointment at outcome

-- Swatch not looking at any more partnerships

(Adds comments from Swatch Chairwoman Nayla Hayek in 5th, 6th paragraph, analyst in 12th paragraph)

By John Revill and Goran Mijuk

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BASEL, Switzerland (Dow Jones) -- U.S. luxury goods maker Tiffany & Co. (>> Tiffany & Co.) has launched a counter-claim against Swiss watchmaker Swatch Group AG (UHR.VX) for damages related to a failed partnership between the two companies.

In a statement Monday, Swatch said Tiffany is seeking 541.9 million Swiss francs ($589 million) from Swatch after the Swiss company and its affiliate, Tiffany Watch Co. Ltd, claimed 3.8 billion francs in damages from Tiffany & Co. in December.

Swatch said the counter-claim has "no factual or legal basis" and that it will be "vigorously contested." Tiffany couldn't be reached for comment Monday.

In an interview at the Baselworld watch and jewellery show, Swatch Chairwoman Nayla Hayek said she was unable to comment on the case for legal reasons.

She expressed disappointment, however, over how the alliance had ended.

"I think we all know in the watch business there was an opportunity for a brand like Tiffany to have a big success," she said.

"If you look at the [sales] numbers of Chopard, or Cartier, there is a big business. It's not jewellery business, but watches from a jewellery brand."

The two companies formed an alliance in late 2007 to spur the development, production and global distribution of Tiffany brand watches. The alliance, which included setting up Tiffany Watch Co., ended last September.

At the time, Swatch said it terminated the accord following Tiffany's "systematic efforts to block and delay development of the business." Swatch cited a material breach of contract and said the company would file for damages.

In a statement made last year, Tiffany blamed Swatch for failing "to provide appropriate distribution for Tiffany's brand watches."

The court handling the case is based in the Netherlands, Swatch said, but declined to comment on the timing of any ruling.

Analysts said that it was difficult to predict the outcome of the case. "But we expect that, if at all, Swatch will receive some damages from Tiffany," Zuercher Kantonalbank said in a note to clients.

Despite being hailed by both companies as a historic agreement, the alliance never really took off. The original intention was to reach sales of around CHF300 million to CHF400 million--on a par with Italian luxury company Bulgari's watch sales, said analyst Rene Weber at Bank Vontobel in Zurich.

"In the end it only had sales of around CHF20 million," Weber said. "Swatch is a brand which is missing in the jewellery watch business. Cartier, Chopard are there, but Swatch Group doesn't really have anything there," he said.

Analysts said Swatch had complained about Tiffany's slow response to the launch of new products and sales were sluggish.

While Swatch hasn't disclosed the venture's revenue, Tiffany said in its annual report filed in March that the Swatch business represented less than 1% of its net sales in 2010, 2009 and 2008.

Analysts said that Swatch will probably seek fresh partnerships to broaden its portfolio, but this was ruled out by Nayla Hayek.

"We are not looking at new partnerships," she said. "At the moment we have no new partnerships in mind."

-By John Revill, Dow Jones Newswires; +41 43 443 8042 ; john.revill@dowjones.com

Stocks mentioned in the article : Tiffany & Co.
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