Watches of Switzerland shares plunge by a quarter after Rolex buys retailer Bucherer

The Watches of Switzerland Group lost a quarter of its value on Friday morning, heading for the stock's worst day ever, after luxury watchmaker Rolex announced a deal to buy watch retailer Bucherer.

Rolex said the acquisition for an undisclosed sum followed the decision of Bucherer owner Jorg Bucherer — the 86-year-old grandson of founder Carl Bucherer — to sell the business in the absence of any direct descendants to take the reins.

"This move reflects the Geneva-based brand's desire to perpetuate the success of Bucherer and preserve the close partnership ties that have linked both companies since 1924," Rolex said in a statement.

"The Rolex group is convinced that this acquisition is the best solution not only for its own brands but also for all the watch and jewellery partner brands, as well as for all the employees of the Bucherer group."

Swiss retailer Bucherer has more than 100 stores worldwide and has maintained a close partnership with compatriot manufacturer Rolex since 1924. The deal gives Rolex a presence in consumer sales for the first time.

Bucherer will retain its name and brand and its management team will remain unchanged, Rolex confirmed, with its integration into the Rolex business set to complete once competition regulators approve the takeover.

In a subsequent statement Friday, Watches of Switzerland attempted to soothe apparent market concerns that Bucherer, the world's largest luxury watch retailer, will seize more market share through its tie-up with the iconic brand.

Watches of Switzerland insisted the acquisition was solely about succession planning for Bucherer and that Rolex — which is breaking with its modus operandi of acting solely as a manufacturer — is not making a "strategic move" into the retail market.

In its statement, Watches of Switzerland noted that Jorg Bucherer "has no family succession and his wishes are to form a legacy foundation with the proceeds of this transaction."

"This is not a strategic move into retail by Rolex. This is the best-judged reaction to the succession challenges of Bucherer SA," Watches of Switzerland added.

"There will be no operational involvement by Rolex in the Bucherer business. Rolex will appoint non-executive Board members. There will be no change in the Rolex processes of product allocation or distribution developments as a consequence of this acquisition."

Nevertheless, shares of the London-listed company plunged by as much as 29% in early trade, before paring losses.

Though both Bucherer and Rolex are private companies, Watches of Switzerland is listed on the London Stock Exchange and has a market cap of around £1.68 billion ($2.12 billion).

Along with much of the luxury goods market, the company held up well during the cost-of-living crisis in the U.K., though revenue in the three months to the end of July slipped to £382 million from £391 million for the same period last year.

Yet the company said demand for watches remained robust and confirmed its full-year guidance, projecting annual revenue to come in between £1.65 billion and £1.7 billion.

Reassurance has 'fallen on deaf ears'

Russ Mould, investment director at stockbroker AJ Bell, said investors fear that the tie-up will mean Bucherer receives "preferential treatment including better access to the watches that consumers are desperate to buy."

"Watches of Switzerland's efforts to reassure the market that there will be no change in how Rolex allocates stock have fallen on deaf ears," Mould said in an email.

"This is what Rolex might have promised now, but that could easily change in the future."

Mould noted that a trend had emerged among various product manufacturers, including big sportswear brands, of selling directly to consumers, in turn learning more about customer preferences and growing margins by cutting out retailers.

"Imagine that happening with Rolex. Theoretically, it could use Bucherer as its channel to sell and not have to bother with other authorised dealers such as Watches of Switzerland," Mould said.

"It's worth noting that Watches of Switzerland has been a favourite stock among many mid-cap fund managers. They will have to look hard at the Bucherer announcement and decide if it radically changes the investment case."