Swatch has purchased Harry Winston's high-end watches-to-necklaces division, according to reports Monday.
The Swiss watchmaker is paying $750m for the jeweller to the stars, in an effort to expand its luxury offering. Canada's Harry Winston will turn its focus to its diamond mines.
The deal follows strong Asian demand for watches, handbags and other high-end items.
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Swatch's Chief Executive Nick Hayek said the acquisition has the potential to generate more than 1bn Swiss francs in sales and 250m net profit in about four to five years.
Deutsche Bank issued a note on the sector Monday saying that while its constructive, long-term positive bias on luxury remained intact, it believed that for the moment "only Swatch and PPR remain significantly mispriced".
Swatch Group had its target price raised from 440 Swiss francs to 590.
Deutsche also raised the target price of FTSE 100 company Burberry from £1,275 to £1,350.
"We have been advocating for a long time that luxury is a structural outperformer," the bank said.
"The combination of a structural growth story driven by wealth creation and middle-class opportunities in new geographies, and the industry's intrinsic strengths, support superior earnings growth.
"This explains why the sector has delivered top-line growth of 11% and EPS growth of 16% in 2012 despite all the macro headwinds."
Shares in Swatch were up 4%, outperforming a 1.5% rise in the sector index SXQP.
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