Italian based company Luxottica, owner of such well-known brands Ray-Ban, Oakley and Sunglass Hut have agreed to merge with France based Essilor, owner of the progressive lenses Varilux. The deal – to be concluded by the end of 2017 – gives an estimated joint value to Luxottica/Essilor of $46 billion
Conditions finally met
The CEO of Essilor, Hugo Sanglier, first contacted Luxottica with a merger proposal three years ago; but the more fashion and costumer focused company declined, supposedly, due to incompatibilities with the more healthcare oriented lenses manufacturer. Since then, Essilor has tried to adopt policies that concentrate more on the customer, bringing the visions of the two companies closer. For Sanglier, both companies now share the same values, the same vision and have the same interest in the product. Leonardo Del Vecchio, CEO and founder of Luxottica is very optimistic that the merger will be concluded commenting: “two products which are naturally complementary - namely frames and lenses - will be designed, manufactured and distributed under the same roof."
The deal is highly reassuring for investors who had lost confidence in the future leadership of Luxottica after three different people sat in the CEO’s chair in less than 17 months, raising concerns on the stability of the company and decreasing its value. Del Vecchio, who had distanced himself from the running of the company for some 10 years, was forced to take over. In the eyes of investors; the merger presents Sanglier as a strong candidate for the future of the merged companies; Especially considering Luxottica and Essilor have a similar value, $24 Billion and $22 Billion respectively.
A bright future for Luxottica/Essilor
Analysts believe that the eyewear industry will experience an increase on demand of between two and four percent annually due to an aging population. Moreover, the industry believes that at least 2.5 billion people in the world still suffer from uncorrected vision problems which creates a promising environment for investment and the development of Luxottica/Essilor’s market presence. New strategies such as online platforms have already proved beneficial to Luxottica in the past year and will be a priority for 2017 as well as increasing their presence in the Asian and Latin American markets.
Luxottica and Essilor combined will have 140,000 staff and will be headquartered and listed in Paris. Operating profit is expected to increase by up to €600 million and will provide annual revenue of $15 billion. The deal has already boosted both companies values whose shares went up by 86 % to 53.80 and 12.2% to 114,60 respectively by 14:05 GMT on Monday.
Will the merger succeed?
Despite the promising numbers the deal will likely depend on how compatible both the companies and the visions of their CEOs will be. The governance system – which was one of the main reasons why the first merger proposal failed – has already been decided upon. It will be a “shared presidency” with Del Vecchio as president and Sanglier as executive vice-chairman and deputy chief executive but with both having the same power. Moreover, there will be a 16-strong board evenly split between Essilor and Luxottica executives, although Del Vecchio will be the biggest shareholder of the combined group with a stake of between 31% and 38% through his family holding company Delfin, despite the fact that voting rights will be capped at 31%.
The chances of success would seem to depend on the ability of Sanglier to convince Del Vecchio – who was rumored to be the cause of the change of CEOs at Luxottica – to continue his family legacy in the future. That said there has not been any news about a possible retirement from Del Vecchio in the near future. Nevertheless with both companies starting to encroach on each other’s markets the merger is definitely a better alternative than an all-out competition with one other.