The Indian Express (Delhi Edition)
Luxottica, Essilor in €46 billion merger deal to create global eyewear giant
ONE OF EUROPE’S LARGEST CROSS-BORDER TIE-UPS
ITALY’S LUXOTTICA and France’s Essilor have agreed a 46 billion euro ($49 billion) merger to create a global eyewear powerhouse with annual revenue of more than 15 billion euros.
The all-share deal is one of Europe’s largest cross-border tie-ups and brings together Luxottica, the world’s top spectacles maker with brands such as Ray-ban and Oakley, with leading lens manufacturer Essilor.
“Finally ... two products which are naturally complementary — namely frames and lenses — will be designed, manufactured and distributed under the same roof,” Luxottica’s 81-year-old founder Leonardo Del Vecchio said in a statement on Monday.
The merger between the top players in the $95 billion eyewear market is aimed at helping the businesses to take full advantage of expected strong demand for prescription spectacles and sunglasses due to an ageing global population and increasing awareness about eye care.
Jefferies analysts estimate that the market is growing at between 2 per cent and 4 per cent a year, while Luxottica and Essilor say that at least 2.5 billion people in the world still suffer from uncorrected vision problems.
The deal also removes — for now at least — uncertainty over succession at Luxottica, which has lost three CEOS since 2014 because of rifts with Del Vecchio.
“The strategic rationale is strong,” Jpmorgan Cazenove analysts said in a note, adding that the deal defuses the risk of growing competition between two groups that had been encroaching on each other’s areas of expertise in recent years, with Essilor buying online retailers and Luxottica investing in lens manufacturing. Both companies have been grappling with slowing sales growth, hit by weakness in North America, and face rising competition from cheaper rivals and the challenge of online distribution.
While Asia and Latin America are seen by the companies as potential growth markets, e-commerce will also be a top priority.
Luxottica’s third-quarter results had showed revenue from its online platforms grew by 18 per cent, with the company stating that e-commerce had been targeted as an area foracceleratedgrowthin2017.thethird-quarter e-commerce growth far exceeded that for overall sales, which rose by 1.4 per cent at constant exchange rates.
The merger is expected to boost operating profit by up to 600 million euros in the medium term, the companies said. It will also leave smaller rivals lagging even further behind. Dutch retailer Grandvision and Italy’s Safilo Group had revenue of 3.2 billion euros and 1.3 billion euros respectively in 2015.
Though advisers on the deal have presented it as a merger of equals, Del Vecchio will be the biggest shareholder of the combined group with a stake of between 31 per cent and 38 per cent through his family holding company Delfin. Voting rights will be capped at 31 per cent.
Analysts said that Essilor shareholders are getting a good deal because the share exchange ratio implies a 5 per cent discount to Luxottica’s closing price on Friday, which was down 27 per cent from its 2015 peak.
Delfin will contribute its 62 per cent stake in Luxottica at a ratio of 1 share in the Italian group for every 0.461 Essilor shares. The French lens maker will launch a mandatory exchange offer on all remaining Luxottica shares at the same ratio, with the aim of delisting Luxottica’s shares.
The merged Essilorluxottica will have 1,40,000 staff and will be headquartered and listed in Paris. It will also have a complex governance structure, with Del Vecchio and Essilor Chairman and CEO Hubert Sagnieres effectively sharing the driving seat, while the 16-strong board will have an even split of Essilor and Luxottica executives.
A source close to the deal said no arrangements had been made at this stage for when Del Vecchio will retire.
Del Vecchio, who returned to the helm of Luxottica two years ago after taking a back seat for the previous 10 years, will be CEO and executive chairman of the merged group. Sagnieres, 61, will serve as executive vicechairman and deputy CEO, but he and Del Vecchio will have the same powers.
In a conference call with analysts, the two sought to play down concerns over the coleadership.