02:51 PM CDT on Monday, June 12, 2006

By MARIA HALKIAS / The Dallas Morning News

Zale Corp.’s biggest competitor, Kay Jewelers’ parent Signet Group Plc., confirmed this morning that the two companies have held preliminary merger talks, but later said discussions have been terminated.

Irving-based Zale’s stock price shot up 13 percent Monday, but retreated after the additional information came from Signet saying talks had ended. Zale's shares continued to trade up more than 7 percent this afternoon.

"Further to this morning's announcement, Signet confirms that discussions regarding a possible merger with Zale Corp. have been terminated," the UK-based company said in the day’s second statement.

Signet’s original statement warned that it was it was an early stage and the talks could go no where. It said: “The board of Signet Group Plc. confirms that it has held preliminary discussions with Zale Corp. regarding a possible merger. However, at this early stage, there is considerable uncertainty as to whether any transaction will be forthcoming.”

The news first broke Sunday in London newspaper, the Financial Mail .

The newspaper reported that Zale approached Signet in the past few months.

Zale spokesman and treasurer David Sternblitz wasn't available for comment. In a recent interview, acting CEO Betsy Burton said the board wasn’t putting the company up for sale. And last week, Mr. Sternblitz elaborated that the board believes the company can be turned around so that existing shareholders can benefit.

Zale has been through a major overhaul of top management this year after a strategy to move its Zales chain more upscale failed to produce results last Christmas.

Signet also owns Jared The Galleria of Jewelry. It makes about three-quarters of its sales in the U.S. and last year Kay’s sales exceeded Zale’s namesake Zales Jewelry chain for the first time.

E-mail mhalkias@dallasnews.com