UPDATE:Court Rules Swatch Can Reduce Component Supply To Rivals
September 08 2011 - 4:49AM
Dow Jones News
Swiss watchmaker Swatch Group AG (UHR.VX) has won the latest
round in its fight to reduce the amount of components it has to
supply to rival watchmakers.
A Swiss court Thursday rejected an appeal by 11 watchmakers, who
wanted Swatch to be forced to continue the full supply of parts and
movements next year while a full investigation into the matter
takes place.
Swatch, which makes watches under brands such as Omega, Breguet
and the eponymous plastic Swatch watches, is currently taking part
in an investigation which could allow it to reduce the parts it
supplies to third parties.
The world's largest watchmaker supplies movements and other
parts to rivals in Switzerland through its manufacturing
operations.
In terms of volume, Swatch controls 70% to 80% of the sector's
watch-movement production, according to a research study by the
investment firm Sanford C. Bernstein & Co.
This dominant position means it cannot unilaterally halt its
supply to other companies, which include Compagnie Financiere
Richemont (CFR.VX) and LVMH Moet Hennessey Louis Vuitton (MC.FR),
without infringing the Swiss Cartel Act.
In June Swatch asked the Swiss Competition Commission to
investigate its position.
The regulator is now speaking to watchmakers to determine the
likely impact of Swatch's intentions to cut back its supply to
rivals, and is likely to report back in the second half of 2012,
commission spokesman Patrik Ducrey said.
Until then interim measures have been brought in, which mean
Swatch must maintain supplies at 2010 levels this year, but in 2012
can reduce the supply of movements to 85% of 2010 levels and reduce
other components to 95% of 2010 levels.
"The interim measures of the Competition Commission are still
valid," said a spokesman for the Federal Administrative Court on
Thursday.
The 11 companies who appealed against the interim measures, can
appeal to a higher Swiss court or wait for the final decision of
the Federal Administration Tribunal, which is expected at the end
of the year.
Swatch Group said it welcomed the court decision.
"Everything is going as planned," said spokeswoman Beatrice
Howald.
Johann Rupert, executive chairman and CEO of rival Richemont
gave his support to Swatch earlier this week.
"I have great empathy with Swatch. None of these people want to
invest in their own plants. We invest, Swatch invests, Rolex
invests, but there are others who don't but expect to be bottle fed
by Swatch," Rupert told Dow Jones Newswires on the sidelines of
Richemont's AGM on Wednesday.
Rupert said if Swatch reduced supplies, it will increase costs
for watchmakers. "We can live with that, but not all our
competitors can," he said.
-By John Revill, Dow Jones Newswires; +41 43 443 8042 ;
john.revill@dowjones.com
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