French lensmaker Essilor International SA agreed to buy Luxottica Group SpA, the maker of Ray-Ban sunglasses, for about 22.8 billion euros ($24 billion) in stock, combining the largest manufacturer and retailer in eyewear.
Leonardo Del Vecchio, who created Luxottica in 1961 and controls 62 percent of its stock, will be executive chairman and chief executive officer of the combined business, which will be named EssilorLuxottica, the companies said Monday in a statement. Essilor CEO Hubert Sagnieres, 61, will be executive vice chairman and deputy CEO with powers equal to Del Vecchio’s. Essilor shares gained as much as 19 percent while Luxottica rose as much as 15 percent.
Four years after talks began, the 81-year-old Italian billionaire said he’s achieving his dream of combining the two businesses, creating one company that’s strong in lenses, frames and eyeglass retailing. The deal also solves a protracted succession puzzle for Luxottica, which has had difficulty retaining top management, with two CEOs resigning in 2014. Del Vecchio has said he didn’t want to bring any of his six children into the company.
“This operation would be a perfect fit on paper as both groups are leading their respective categories,” said Cedric Rossi, an analyst at Bryan Garnier & Co. “Nevertheless, two main question marks remain at this stage: EssilorLuxottica might face antitrust barriers, and management appointments in newcos are quite complicated.”
The deal is the largest acquisition ever of an Italian company by a foreign buyer, according to data compiled by Bloomberg, and it adds to a string of such takeovers that has shrunk Italy’s roster of multinational corporations. ChemChina bought tiremaker Pirelli & C. SpA in 2015 and the Pesenti family last year ceded control of cement producer Italcementi SpA to Germany’s HeidelbergCement AG. Luxottica is Italy’s fourth-largest publicly traded company by market value.
The companies described the transaction as a combination rather than an acquisition of Luxottica by Essilor. In addition to the two top executives sharing power, Del Vecchio’s Delfin investment company and Essilor will each nominate eight directors for the combined company’s 16-member board and the equity of EssilorLuxottica will be about 50 percent owned by each company’s shareholders.
Luxottica makes frames for luxury brands such as Armani, Chanel, and Prada, and is the biggest eyeglass retailer, with chains including Lenscrafters, Pearle Vision and Sunglass Hut. Essilor is No. 1 in lenses, and also has been expanding in eyewear retailing via acquisitions.
The transaction should generate cost savings and increased revenue of 400 million euros to 600 million euros a year within about three to four years, Sagnieres said. The combined company will have more than 15 billion euros in annual revenue. Del Vecchio, Italy’s second-richest person, will be the single largest shareholder, controlling a stake of between 31 and 38 percent.
“This is a merger where they will be able to complement each other and create economies of scale on the supply chain,” said Catherine Lim, a Bloomberg Intelligence analyst. “Luxottica is a licensee of major branded eyewear while Essilor has been more focused on making lenses.”
EssilorLuxottica will be able to overcome antitrust hurdles, because its combined revenue would only account for about 16 percent of the market, Del Vecchio said on a call with analysts. However, the new company will have more than 50 percent of the sunglasses market and be the largest maker of spectacle frames, lenses and ready-made reading glasses, according to Jasmine Seng, an analyst at Euromonitor.
Delfin will sell each of its Luxottica shares to Essilor in exchange for 0.461 of an Essilor share. Essilor, based in Charenton-le-Pont near Paris, will then begin an offer for the remaining Luxottica stock at the same exchange ratio, with a goal of delisting the Italian company. Mediobanca SpA advised Delfin, while Citigroup Global Markets and Rothschild worked for Essilor.
The bid values Milan-based Luxottica at 47.07 euros a share based on Friday’s closing price for Essilor, 5 percent lower than where Luxottica finished the week. Luxottica had a market value of about 24 billion euros as of Friday, with about 22 billion euros for Essilor.
Essilor shares surged 13 percent to 115.25 euros at 2:45 p.m. in Paris, lifting the value of the takeover to about 53.13 euros per Luxottica share. Luxottica climbed 8.8 percent to 53.90 euros.
Luxottica increasingly competes with large luxury players such as Kering in a global eyewear industry worth about $121 billion last year, according to data from Euromonitor. The company’s expansion into lenses is attractive amid rising consumer demand and as the segment offers high margins, according to Bloomberg Intelligence.
Demand for eyewear is expanding in emerging markets with more than 2.3 billion people in Asia, Africa and Latin America needing optical frames, according to Exane BNP Paribas.
The two companies had been on a “collision course,” Exane said in a note in October as Luxottica moved into lens manufacturing while Essilor advanced into frames and acquired online eyewear retailers. Lens manufacturing will be a big deal for Luxottica as it makes it independent for sun and prescription lenses, it said.
|© Kirstin Sinclair/Getty Images Fashion blogger Sandra Hagelstam wears an Acne jacket, Roksanda Ilincic jumpsuit, Gianvitto Rossi shoes, Chanel bag and Ray Ban sunglasses on day 8 of Paris Collections: Women on March 10, 2015 in Paris, France.|
European eyewear giants Luxottica and Essilor to merge
A new global eyewear giant is set to emerge as Italian frames maker Luxottica — home to popular brands Ray-Ban and Oakley — plans to join French lens manufacturer Essilor in an estimated $16 billion merger, the companies announced Monday.
Essilor International SA said it has reached a share exchange deal with Luxottica’s main shareholder, Delfin, to create a combined eyewear giant that will make both frames and lenses and have a strengthened position to address vision needs worldwide.
The combined companies would represent an eyewear giant with a roughly $50 billion market capitalization. They would have about 27% of the market, easily topping competitors such as Johnson & Johnson and Safilo Group, The Wall Street Journal reported, citing data from Euromonitor.
Shares of Luxottica closed up 8.25% at 53.65 euros in Paris trading after the announcement, while Essilor shares closed 11.85% higher at 114.20 euros in Paris.
The statement said the new company would have combined annual revenues of more than 15 billion euros ($16 billion), 140,000 employees and sales in more than 150 countries, including the U.S.
Essilor said the merger is designed to meet growing global demand for corrective lenses, sunglasses and luxury frames.
The deal calls for Delfin to contribute its approximately 62% stake in Luxottica to Essilor in return for newly-issued Essilor shares to be approved at an expected meeting of the company's shareholders. The exchange ratio would be 0.461 Essilor shares for each Luxottica share, the companies said.
Essilor would then make a mandatory public exchange offer, in compliance with Italian law, to acquire all of the remaining and outstanding shares of Luxottica at the same exchange ratio. Luxottica's shares would be delisted afterward, the companies said.
Essilor would become a holding firm called EssilorLuxottica. It would wholly own a new company called Essilor International as part of the deal.
Following completion of the transaction, Delfin would own 31% to 38% of the shares of EssilorLuxottica, and would be the holding firm's largest shareholder. The voting rights of any shareholder of EssilorLuxottica would be capped at 31%.
The transaction is subject to consultation procedure according to French law, the companies said. Both firms' boards unanimously approved the merger.
Leonardo Del Vecchio, Luxottica’s executive chairman, and Hubert Sagnières, Essilor's chairman and CEO, would be co-leaders of the new eyewear giant, the companies said.
Del Vecchio would serve as executive chairman and CEO of EssilorLuxottica. Sagnières would serve as executive vice-chairman and deputy CEO of EssilorLuxottica, with equal powers as the Chairman and CEO. Del Vecchio and Sagnières would also keep their respective positions of executive chairman of Luxottica and chairman and CEO of Essilor International.
“Our project has one simple motivation: to better respond to the needs of an immense global population in vision correction and vision protection by bringing together two great companies, one dedicated to lenses and the other to frames, Sagnières said in a statement issued with the announcement.
"Finally, after fifty years, two products which are naturally complementary, namely frames and lenses, will be designed, manufactured and distributed under the same roof," Del Vecchio added.
Essilor and Luxottica projected the newly combined company would progressively generate revenue and cost synergies ranging from roughly $424 million to $636 million in the medium term.
The deal is expected to close in the second half of 2017.