Essilor, Luxottica to Merge, Creating $49 Billion Company -- 2nd Update
January 16 2017 - 3:48AM
Dow Jones News
By Inti Landauro and Manuela Mesco
PARIS--French optical lens maker Essilor International SA and
Italian frames maker Luxottica Group SpA said Monday they have
agreed to merge, creating an eyewear industry giant with a market
value of around EUR46.3 billion ($49.16 billion).
Italian holding company Delfin--which is Luxottica's main
shareholder and will also be the leading shareholder of the new
entity--will exchange its shares in the Italian maker of Ray-Ban
and Oakley brands for newly issued shares in the French
company.
The plan to create a combined company making both lenses and
spectacles may alleviate concern that growing competition was
increasingly pitting the two companies against each other. Essilor
was moving into frames while Luxottica, which focuses on frames and
retailing activities, is also expanding its lens manufacturing.
"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.
Delfin, which is owned by Luxottica's founder and executive
chairman, Leonardo Del Vecchio, will swap its 62% Luxottica stake
for 38% in the new Paris-listed company, to be named
EssilorLuxottica. Essilor will then offer minority stakeholders
0.461 of EssilorLuxottica's shares for each of Luxottica's, with
the aim of withdrawing the shares from the Milan stock market.
At the end of the exchange offer, Delfin would own a 31% stake
in the merged company, which will be based in Essilor's main
offices in Charenton, just outside Paris.
According to Euromonitor, Luxottica has a global market share of
14% in eyewear, while Essilor has 13%, putting them far ahead of
other competitors, such as Johnson & Johnson Inc. and Safilo
Group SpA, both with market shares below 4%.
Late last year, Exane BNP Paribas' analyst Luca Solca said the
profit pool for both could shrink because of harsher price
competition for frames and lenses.
Luxottica's Mr. Del Vecchio will become CEO and executive
chairman of the new entity, while Essilor's 61-year-old Mr.
Sagnières will be deputy CEO and vice executive chairman, giving
him equal power to Mr. Del Vecchio.
The 16-member board of the merged company will be evenly divided
between the two current businesses.
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.
Mr. Del Vecchio, 81 years old, has been struggling to set up a
long-term management structure at Luxottica.
After long-term CEO Andrea Guerra left the company in 2014 over
clashes with Mr. Del Vecchio, the founder took over executive
powers. But 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 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 are no longer on the table, as Mr. Del Vecchio
had equally distributed stakes of 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 for Delfin, while Citigroup
Global Markets Ltd. and Rothschild & Co. advised for
Essilor.
The merger has been in the works for years, according to a
person close to the matter.
Write to Inti Landauro at inti.landauro@wsj.com and Manuela
Mesco at manuela.mesco@wsj.com
(END) Dow Jones Newswires
January 16, 2017 03:33 ET (08:33 GMT)
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