Zale Shares Rise onh PE Purchase Talk

NEW YORK (Reuters) – Zale Corp’s (ZLC.N) shares jumped after a report said that the jewelry store operator was in talks with three finalists to take a stake in the retailer.

Zale shares were up 48 cents, or 16.4 percent, in afternoon trading on the New York Stock Exchange.

Private equity firms TPG and Golden Gate Capital are two of the companies in advanced discussions with Zale, Bloomberg News reported on Wednesday, citing three people with knowledge of the situation.

Zale is the largest North American jewelry store operator by store count.

Bloomberg reported that Zale could sell a minority stake of between $100 million and $150 million, citing two of those people.

“Our process is ongoing and it’s going well and it’s on the timetable we talked about,” Zale Chief Financial Officer Matt Appel told Reuters, declining to comment on specific firms.

But Appel re-confirmed Zale’s plan, stated in February, to have identified investors by sometime in May and have funds on hand in time for a full-fledged advertising campaign for Mother’s Day, the second most important season for jewelers after Christmas.

Zale, which is struggling with sharp sales declines, hired turnaround firm Peter J. Solomon Co to help it find investors.

The Dallas-based chain must also decide this month whether to pay a $6 million penalty to Citibank (C.N), which issues its private label credit cards, to compensate for weak sales made on the cards, or face an early end to their agreement, which expires in 2011 and which Citi has said it will not renew.

Citi said on Monday that it was ending its deal to issue credit cards in Canada. The Citi-issued cards account for about 40 percent of U.S. sales, and 25 percent of Canadian sales.

“There are no financial institutions that we’ve ruled out. We’re actively exploring all available options,” Appel said, referring to the search for a new bank to issue its branded credit cards in both countries.

TPG’s holdings include luxury department store chain Neiman Marcus Group Inc [NMRCUS.UL], while Golden Gate is an investor in apparel retailer Eddie Bauer and nutritional supplement marketer Herbalife.

Last month, news reports said Zale was in talks with Sun Capital Partners Inc, but the private equity firm is not one of the finalists, Bloomberg reported, citing two of the people.

Sun Capital, TPG and Golden Gate did not return calls seeking comment. (Reporting by Phil Wahba; additional reporting by Megan Davies; Editing by Leslie Gevirtz and Steve Orlofsky)