By Inti Landauro and Manuela Mesco 

PARIS-- Luxottica Group SpA, maker of Ray-Ban, has agreed to a merger with French optical-lens maker Essilor International SA, placing its Italian founder at the helm of a globe-spanning colossus with brands gracing European catwalks and California beaches.

Under the deal, the companies will carry out a complex share swap that will make Leonardo Del Vecchio--Luxottica's 81-year-old founder and executive chairman--the top executive and largest shareholder of a firm with a combined market value of around EUR46.3 billion ($49.16 billion).

Mr. Del Vecchio will exchange his 62% Luxottica stake for 38% of Essilor, which will be renamed EssilorLuxottica. The Paris-listed company will then offer Luxottica's outstanding shareholders 0.461 of each of its shares for one of Luxottica's, leaving Mr. Del Vecchio with 31% of EssilorLuxottica, the firms said in a joint statement.

The merger joins two companies that previously risked stepping on each other's toes as Luxottica expanded into lens manufacturing and Essilor moved into frames. Last year, Exane BNP Paribas warned the profit pool for both companies could shrink because of a harsher price competition for frames and lenses.

Instead the combined companies will have about 27% of the eyewear market, putting them far ahead of other competitors, such as Johnson & Johnson Inc. and Safilo Group SpA, both with market shares below 4%, according to Euromonitor. The merged companies will have a combined annual revenue of EUR15 billion and earnings before interest, taxes, depreciation and amortization of EUR3.5 billion. Both companies expect annual synergies worth between EUR400 million and EUR600 million.

"Never--since lenses were created centuries ago--have the same people made the lenses and the frames," said Essilor Chairman and Chief Executive Hubert Sagnières.

The deal dramatically expands the empire of Mr. Del Vecchio, who has built his firm into the luxury industry's leading eyewear maker by arranging licensing deals with Chanel, Giorgio Armani, Prada and other fashion houses. Luxottica also owns major retailing chains such as LensCrafters.

In recent years, however, Mr. Del Vecchio struggled to delegate authority, dismissing one planned successor after another. It is unclear whether Mr. Sagnières, who will be deputy CEO and vice executive chairman of the combined firm, will fare any better.

In their statement, the companies said Mr. Sagnières will have "equal powers" to Mr. Del Vecchio. Under the deal, the Italian billionaire has agreed to evenly divide EssilorLuxottica's 16-member board between the two current businesses, and the new firm will be based in Essilor's main offices in Charenton-le-Pont, just outside Paris.

However, the deal requires Mr. Del Vecchio to share power with Mr. Sagnières only while the two companies are being integrated, according to people familiar with the matter. After that, the agreement positions the octogenarian to call the shots in the merged company's boardroom by stipulating that no investor can wield more voting rights than Mr. Del Vecchio. In addition, French stock market rules bar anyone from acquiring 30% or more of a company without taking the costly step of launching a bid for all shares outstanding.

Mr. Del Vecchio has long defied market expectations that he would step aside and make room for new blood. In 2014, Mr. Del Vecchio ousted Luxottica's longtime CEO Andrea Guerra, a figure many investors regarded as his potential successor. The decision nearly sparked a board revolt and drove out another trusted lieutenant. It also pushed the stock price down.

Investors and analysts became concerned that Mr. Del Vecchio's family and the company's succession issues could undermine the independence of the management. Mr. Del Vecchio took a step back and created a co-CEO structure to strengthen top managers' independence.

But after one of the two co-CEOs left last year, Mr. Del Vecchio decided to take back executive powers as he wanted more direct control over the markets division, which entails strategies in emerging markets, digital development and e-commerce.

Luxottica recently said that the succession issue and concerns on family interests were no longer on the table, as Mr. Del Vecchio had equally distributed stakes of Delfin, the holding company controlling the eyewear firm, to his sons, who have no seats in the board or roles in the company.

Mediobanca was the sole adviser to Delfin, while Citigroup Global Markets Ltd. and Rothschild & Co. were advisers to Essilor.

Write to Inti Landauro at inti.landauro@wsj.com and Manuela Mesco at manuela.mesco@wsj.com

 

(END) Dow Jones Newswires

January 16, 2017 07:10 ET (12:10 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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