Eyewear giants combine in €51 billion merger
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Eyewear giants combine in €51 billion merger

Italian eyewear maker Luxottica and French corrective lens producer Essilor have agreed to a landmark deal for the eyewear industry. The deal, worth €51.1 billion, will see the two ocular kingpins merge into EssilorLuxottica. This is big news for the luxury sector: Luxottica is the world’s largest glasses seller and holds brands like Ray-Ban and Oakley in its portfolio. It also has the licenses for Burberry, Ralph Lauren, and more, and owns the retail chain Sunglasses Hut. Essilor, meanwhile, is the world’s largest manufacturer of ophthalmic lenses. Heavily focused on research and development, it’s responsible for creating the first ‘progressive’ lens to combat presbyopia (the natural decline of the eyes through ageing – think reading glasses!)

Luxottica had a great week last week – that’s before the news!

SOURCE: Yahoo Finance

The two companies are both dominant forces in the eyewear sector with 7% (Essilor) and 9% (Luxoticca) market share – however, there’s very little overlap between them, with each company operating in niches where the other is not present. This bodes well for anti-trust, and makes the deal attractive for a number of reasons. Paolo Baccanello, Investment Manager of Dominion’s Luxury Fund, wrote in a note this morning:

“Essilor was a supplier of lenses to Luxottica. Its weakness was lack of direct contact with the consumer, something that Luxottica, with its control of distribution, has in abundance. Technological advances have made it increasingly easy to bring lens grinding “in shop”. Luxottica was in the process of doing this. Meanwhile, in an effort to reduce distance to the consumer, Essilor embarked on M&A, buying on-line distribution start-ups and mid-range sunglass manufacturers in China. Hitherto, this M&A has proved dilutive and has not delivered as promised. The whole here is worth more than the parts insofar as it eliminates a growing rivalry between two companies dominant in their respective areas.”

Mr. Baccanello identified Luxottica as a potential takeover target at the start of November. Writing then, he noted that Luxottica’s founder, 80-year old Leonardo Del Vecchio, had not brought any family members into the business, and that “a merger with Essilor would resolve succession issues and generate considerable accretive synergies given growing overlap.” As a result, Luxottica is a key holding in all of Dominion’s Global Trends Funds.

According to Essilor, which claims synergies will be in the range of €600 million, the deal will allow both businesses to “better seize growth opportunities resulting from strong demand in the eyewear market.”

Leonardo Del Vecchio also released a statement, saying: "The marriage between two key companies in their sectors will bring great benefits to the market, for employees and mainly for all our consumers. Finally, after fifty years, two products which are naturally complementary, namely frames and lenses, will be designed, manufactured and distributed under the same roof."

He was joined by Essilor CEO and chairman Hubert Sagnières, who said, separately: "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.

"By joining forces today, these two international players can now accelerate their global expansion to the benefit of customers, employees and shareholders as well as the industry as a whole."

Disclosure
Dominion holds Luxottica in its Global Trends Luxury Fund.



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The views expressed in this article are those of the author at the date of publication and not necessarily those of Dominion Fund Management Limited. The content of this article is not intended as investment advice and will not be updated after publication. Images, video, quotations from literature and any such material which may be subject to copyright is reproduced in whole or in part in this article on the basis of Fair use as applied to news reporting and journalistic comment on events.