Doyenne’s death sparks speculation over Swatch Group’s future
Since Marianne Hayek, the wife of Swatch Group founder Nick Hayek Senior, died a month ago at the age of 93, the small world of Swiss watchmaking has been abuzz with speculation about the consequences that her death may have on the group’s leadership and structure.
Some industry insiders believe the Swatch Group could be broken up and some brands sold. Others are confident nothing will happen in the immediate future, particularly as resurging demand in China will boost the sales of many of its brands, such as Omega, Tissot and Longines – a positive trend that will encourage the status quo. Miss Tweed considers the group’s future.
NO SERIOUS DISCUSSION
Marianne Hayek, a stern and determined woman, kept the family together with an iron grip after her husband died in 2010. While she was alive, no serious discussion about the future of the group could take place between the three key members of her family, industry insiders say. That includes her son, Nick Junior, CEO of the Swatch Group, her daughter Nayla, who is chairman and looks after jeweler Harry Winston, and her grandson Marc, who is CEO of luxury watchmaker Blancpain and oversees luxury watch brands.
There is tension between all of them, as is often the case in families. Following Marianne’s death, each will inherit one third of her controlling stake worth several billion euros. The Hayek family controls an empire composed of major watch component and movement factories and of some 17 brands including Omega, the source of about half the group’s profits. It also owns the brands Certina, Hamilton, Rado and Swatch and produces and distributes watches under license for the French fashion brand Balmain.
Nayla is 72, Nick Junior 68 and Marc 52. Nayla is more interested in breeding horses than in jewelry and has done little to develop the Harry Winston brand, as Miss Tweed reported in 2021. Marc runs Blancpain and looks after high-end watches Breguet and Jaquet Droz but staff rarely see him, as Miss Tweed explained in 2021. Marc spends most of his time on his yacht and away from the office, industry sources say. Breguet’s sales now hover around €320 million euros, according to Vontobel estimates, or less than half what they were a decade ago. However, the situation is not serious enough for change to be afoot, most industry specialists say.
CREATIVITY NEGLECTED
“In my opinion, they don’t hate each other enough to go as far as breaking up the group,” a former Swatch Group manager and close friend of Marianne’s told Miss Tweed on condition of anonymity. “They don’t need money. And the memory of Nick Senior is still there, but for how long, it’s difficult to say. For now, in my opinion, the most likely scenario is the status quo.”
Yet there is talk among watch executives, bankers and consultants about what could happen should Nick Junior decide to split up the group. For example, he could give Harry Winston to Nayla and give her son the group’s high-end arm that includes Breguet and Jaquet Droz on top of Blancpain. The Swiss watch chronicler Business Montres, authored by Gregory Pons, recently published a thorough analysis of the consequences of Marianne’s death. Pons argues that a split is one possibility. And, of course, many bankers would like to see the Swatch Group putting up for sale Harry Winston, for which it paid $1 billion 10 years ago, as well as Breguet which would fetch more than $1 billion.
Each would perform better and would be worth much more if run by professional managers instead of the notorious sycophants currently in place. Industry sources lament the fact that the storytelling and creativity of these two brands has been neglected in recent years. “But selling Harry Winston or Breguet would mean admitting failure,” a senior watch executive commented about the Hayek’s readiness to sell any of the family jewels.
Yet, it is clear that the Swatch Group could be performing better. Sales in 2022 rose 4.6 percent to 7.4 billion Swiss francs while many jewelers, including LVMH’s Bulgari, Tiffany & Co, Richemont’s Cartier and luxury watch brands enjoyed double-digit growth. The Swatch Group’s inventories stood at 6.8 billion Swiss francs on Dec. 31, 2022, which is close to one year of turnover. The group’s share price and valuation have also been under-performing compared with industry peers Richemont, Kering and LVMH for many years.
In spite of such lackluster results, senior management and board members continue to pay themselves handsomely. Last year, Nick Junior’s remuneration totaled 6.5 million Swiss francs while Nayla’s was 4.2 million Swiss francs, according to the group’s annual report. These figures put them in the same league as Richemont’s top executives. However, Richemont makes nearly three times as much revenue, or €20 billion, and its market capitalization is six times greater at €88 billion.
SHAREHOLDER PACT
A question industry observers often ask is why an activist fund has not targeted the group to change its governance and improve performance. Activist funds Bluebell and Third Point, which both bought stakes in Richemont to bring about changes in the past two years but did not go very far, appear to have passed on the Swatch Group. The Hayek family controls not only 42.7 percent of voting rights but also the entire board of directors and leadership. Nobody challenges their decisions and strategy, and few of the group’s major institutional shareholders appear to have the determination and stamina to push for change.
The Hayeks are also bound by a shareholder pact. Marc, Nayla and Nick have first refusal if one of them wants to sell his or her shares. “No shareholder can ask them to do anything,” a senior industry source said of the trio. The Swiss press is rarely critical of the Swatch Group because it benefits from its advertising. The group has thousands of small individual shareholders, many of them Swiss pensioners who are happy to receive their dividends and their gift of a Swatch watch every year. The Swatch Group likes to remind people that, in the 1980s, the Swatch brand saved the industry from being destroyed by competition from Japan’s popular quartz movements.
The Swatch Group today is regarded as one of the country’s most important employers, together with Rolex. They are known as paternalistic companies offering generous benefits. They also help Switzerland’s watchmaking know-how and engineering shine around the world. Rolex and Swatch Group are the pride of the country and a major vector of Swiss soft power.
LIST OF CHANGES
Yet, the list of changes frustrated investors who would like to see at the Swatch Group is long. This week, the group issued a terse statement after its annual general meeting (AGM) saying that all the resolutions were passed with “an overwhelming majority”. No details were provided. After the AGM, the Swiss foundation Ethos fired a few arrows at the Swatch Group. Ethos, composed of pension funds and institutional investors and which promotes socially responsible investment, criticized the fact that the meeting was not held in person but conducted electronically. In this way, it is easier to block certain questions.
It criticized the lack of independence of the Swatch Group’s board members. “Ethos also took the opportunity to ask theboard ofdirectors to strengthen its independence by appointing new independent members. At Swatch Group, the average term of office ofdirectors amounts to more than 17 years, while the average term of office of SPI companies is just over seven years.” The SPI, or Swiss Performance Index, is Switzerland’s overall stock market index. Indeed, most Swatch Group board members are long-time allies of the Hayeks. They refrain from asking difficult questions and are paid between €120,000-€155,000 a year plus €24,000 in expenses. The Swatch Group’s spokesperson did not reply to an email from Miss Tweed asking for details about the succession and Marianne Hayek’s death. “We have the choice not to reply,” spokesman Bastien Buss told Miss Tweed.
INVESTOR RELATIONS
Analysts and institutional investors complain that the Swatch Group does not have a dedicated investor relations office. The name of the person shown on the company’s results press release is that of the Finance Director Thierry Kenel who has little time to answer questions. The Swatch Group famously never publishes the date of its results in advance. Sometimes it calls a press conference the next day at its headquarters in Bienne, near Berne, which no overseas investor is able to attend at such short notice. Conference calls are announced on the day of the results.
Broker Bernstein wrote in a note last year that the Swatch Group was the only company it covered that behaved like this. The group does not provide transcripts or replays of conference calls. It does not use IFRS reporting standards but rather Swiss GAAP which gives them more leeway. “Add to that a CEO providing a business narrative seen by many as too rosy and out-of-synch with factual performance and you end up with a large investor audience not wanting to know about Swatch Group at all,” Bernstein said.
One experienced luxury stock investor based in Dubai told Miss Tweed on condition of anonymity: “I have not looked at Swatch Group in years. Its corporate governance is too much of a disaster for me to invest in it!”
MARKET SHARE
Morgan Stanley’s latest annual watch report shows that many of the Swatch Group’s brands continue lose market share year after year. These include Omega, Longines, Tissot and Breguet. In 2020, Omega slipped into third position behind Cartier Watches and never regained its No. 2 spot. In 2022, Tissot was 11th, down from 6th in 2019, and Longines fell to 7th from 4thduring the same period. And Breguet, which was 13th in 2018, is no longer in the top 20.
“Tissot and Longines are volume brands and have become very exposed to China over the years,” said Olivier Müller from LuxeConsult who co-authored the Morgan Stanley report. “The Swatch Group was one of the first to go to China in 1990s, so they have built a significant presence there.”
MOONSWATCH SUCCESS
CEO Nick Hayek, commonly known as Nick Junior, has been heartened by the success of the MoonSwatch, a special edition inspired by Omega’s Speedmaster Moonwatch, of which it sold 1 million units, industry analysts say. Thanks to this popular new model, Swatch enjoyed a significant rebound last year. Analysts expect the group to see strong growth this year, powered in part by resurging demand in China. If sales are on the rise, Nick, Nayla and Marc will be under little pressure to change anything, industry analysts say. However, the Swatch Group’s manufacturing facilities still have too much excess capacity, they say. That is partly because its factories stopped supplying many rival brands which have now invested in their own production facilities.
The succession at Swatch Group remains a mystery. Marc has little desire to replace his uncle. “He will refuse to be CEO of the group, he’s not built for that,” the old friend of the Hayek family said. “He’s a hedonist who does not feel like talking to investors.” Marc is said to be shy and soft-spoken, and staff rarely see him when he is in the office.
Nick regularly tells the press that Swatch Group’s leadership will stay in the family. However, the next generation is not ripe yet. Nick’s son has started working for the group but he is still in his early 20s, and Marc’s children are teenagers. So, none of them will be ready to assume the mantle in the near future. One telling detail about the fact that the family is closer than many believe is that each has a house on the Mediterranean, in Cap d’Antibes in France, and had all the fences between them removed. “At the Hayeks, they want things to remain in the family,” said one industry source who has spent a lot of time with family. “Blood first.”
Things are never simple when business is a family affair.