Coverage: Eyeglass giants Essilor, Luxottica agree to combine

Essilor of France said on Monday that it would acquire the Luxottica Group of Italy, owner of the Ray-Ban and Oakley brands, in a $49 billion deal that would create a giant in the eyewear industry.

Chad Bray and Elizabeth Paton of the New York Times had the news:

The combined company, to be known as EssilorLuxottica, would be the largest player in the eyewear market, manufacturing lenses for prescription glasses and sunglasses, as well as frames. It would have a presence online as well as in stores, with brands including Foster Grant, Oliver Peoples, Persol, LensCrafters, Pearle Vision and Sunglass Hut.

The deal follows more than four years of talks. The new company would have more than 140,000 employees and sales in more than 150 countries. Based on 2015 results, it is forecast to have revenue of more than 15 billion euros, or about $16 billion, in 2016.

“The new group would be a clear leader in the optical industry, with a strong brand portfolio, global distribution capabilities and complementary expertise in ophthalmic lenses, prescription frames and sunglasses,” Fred Speirs, a UBS analyst, said in a research report on Monday.

Luxottica, which makes prescription eyeglasses and sunglasses under a variety of brands, and Essilor, a maker of lenses, are the two largest companies in the sector, with Luxottica having a 14 percent market share and Essilor a 13 percent share, according to the market research firm Euromonitor International. Johnson & Johnson is the next largest, with a 3.9 percent share.

Valentina Za and Sudip Kar-Gupta of Reuters reported on the growth potential of the combined company:

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 percent, with the company stating that e-commerce had been targeted as an area for accelerated growth in 2017. The third-quarter e-commerce growth far exceeded that for overall sales, which rose by 1.4 percent 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.

Thomas Mulier and Dan Liefgreen of Bloomberg News note the deal solves the succession question at Luxottica:

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.”