https://www.ft.com/content/e778b624-8a7d-11e8-b18d-0181731a0340?FTCamp=engage/CAPI/desktopapp/Channel_Bloomberg//B2B

Luxottica looks ahead to sealing deal with Essilor

Merger could open door to mega-deals that would put this one in the shade

4 minutes ago

© Bloomberg

On the banks of Lake Como last week, Luxottica, the world’s number one eyewear maker by sales, toasted its latest sunglasses collections before fashion editors flown in from as far away as China, the US and India.

The owner of Ray-Ban, Oakley and Sunglass Hut, and the manufacturer behind eyewear by Chanel, Prada, Miu Miu, Alain Mikli and Oliver Peoples, expects to soon be toasting another event that will give it even greater clout.

Chinese and Turkish antitrust authorities are expected in the coming days to give the final approval for Luxottica’s merger with France’s Essilor, the world’s largest lens maker by sales.

EssilorLuxottica, as the new Paris-listed company with a combined market value of €50bn will be known, has been a test case for regulators, politicians and executives keen on creating so-called European champions.

Rivals, such as Germany’s Zeiss, have argued that the combined group will flout antitrust limits. Business leaders and bankers, on the other hand, hope that approval will provide a fillip for other big cross-border European mergers under scrutiny, such as Siemens-Alstom.

The deal that brought Luxottica’s billionaire owner-founder Leonardo Del Vecchio to the table may be a harbinger on another front. It has raised expectations of more merger activity in the luxury consumer industry.

Expectations that European luxury goods companies are heading into a new wave of consolidation, nearly 20 years after LVMH and Kering slugged it out for Gucci, has driven up valuations.

And a combination of high valuations, issues over succession and governance and technological disruption, including the recent entry of Alibaba into the online luxury retail, are bringing tycoons to the table who had always said they would never sell.

Some of Europe’s family groups have already succumbed. Entrepreneur Federico Marchetti sold Yoox Net-a-Porter to Richemont for a total value of €5.3bn in May. Family-owned Missoni agreed last month to sell a minority stake to Italian private equity fund Fondo Strategico Italiano for €70m. Antwerp designer D ries Van Noten last month also sold a majority stake i n his closely-held design house to Spain’s Puig.

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Other entrepreneurs are giving the impression of taking to the ramparts. Both Diego Della Valle, owner of Tod’s, and Patrizio Bertelli co-owner of Prada have said in recent weeks that they are buyers not sellers, while admitting approaches from unidentified prospective buyers.

Ferruccio Ferragamo, scion of the Salvatore Ferragamo shoe dynasty, has said unspecified French groups — understood to be both Kering and LVMH — have come calling, but the family declined. “It is like a beautiful woman who gets approached by many men, and is grateful, but declines,” he told the FT earlier this year.

None of the big groups seen as predators — LVMH, Richemont and Kering — has commented. But among senior executives, verbal sparring has become commonplace. Marco Bizzarri, Gucci’s CEO, last month said it was just a matter of time before the company was as big as rival Louis Vuitton.

Bankers have long pitched the idea of a tie-up between Kering and Richemont, a deal which would put the combined group in league with LVMH. According to one senior luxury executive directly informed of the discussions, the groups considered a merger a couple of years ago but it never developed. Since then, Richemont’s acquisition of Yoox Net-a-Porter and the turnround of Kering’s Gucci — which topped €6bn in sales in 2017 — has changed the dynamics of the industry and diminished expectations of a tie up.

Today the ultimate prey is Chanel. A denial that the family behind it would ever sell was widely seen as a warning shot to potential bidders. If it were in play, analysts predict offers not only from the big luxury goods groups but also leaders in personal healthcare, such as L’Oreal.

Crucially, Chanel bears some of the vulnerabilities that brought Mr Del Vecchio to the table. Succession is an issue. Karl Lagerfeld, Chanel’s storied designer is 79. Governance of the group, long closely held by the secretive Werthheimer family, is also complicated.

By size, however, the comparison ends. Chanel is estimated to have an enterprise value of well above €50bn, according to Exane BNP Paribas’s Luca Solca. LVMH has a market capitalisation of €150bn, while Kering and Richemont’s market values are €63bn and €48bn respectively. Any combination of these would put the sunglasses merger between Essilor and Luxottica in the shade.

rachel.sanderson@ft.com

Closing Summary: Stock Market Shakes off Netflix Disappointment

Today started with a whimper, but it eventually unfolded with a bang as the stock market overcame the shock of a reporting disappointment from growth-stock darling Netflix (NFLX 379.48, -21.00, -5.2%).  Remarkably, it was Netflix that helped turn the tide of negative sentiment and fostered a broad-based rebound effort that was led by the information technology (+0.8%), consumer staples (+0.8%), and health care (+0.5%) sectors.

Overall gains were modest in scope, yet they were big with respect to engendering some confidence in the notion that the S&P 500 may be poised to take a run at the all-time high it hit in January (2872.87).

The Nasdaq Composite increased 0.6% and closed at a new record high; the Russell 2000 and S&P Midcap 400 Index advanced 0.5%; the S&P 500 jumped 0.4%; and the Dow Jones Industrial Average added 0.2%.

Netflix was the top story stock of the day.  It had been down as much as 14.1% after reporting disappointing subscriber growth for the second quarter and issuing disappointing third quarter guidance.  Shares of NFLX, however, started to rebound as quickly as they fell at the opening bell.

That reversal was tied to some supportive remarks from analysts and a prevailing belief that the subscriber growth shortfall is likely to be a one-quarter issue; moreover, it was aided by a desire to own the stock at lower prices by investors who had missed the stock's run this year.  Prior to the company's report after Monday's close, shares of NFLX were up 109% in 2018.

The turnaround in the broader market mirrored the intraday turnaround in NFLX, which cut its losses substantially by the closing bell.

The buy-the-dip spirit soon spread to counterparts included in the "FAANG" cohort -- Facebook (FB 209.99, +2.76, +1.3%), Apple (AAPL 191.45, +0.54, +0.3%), Amazon.com (AMZN 1843.93, +21.44, +1.2%), and Alphabet (GOOG 1198.80, +14.94, +1.3%) -- which made a big difference for the tone in the broader market  

Amazon.com for its part got an extra turnaround push on reports suggesting the company saw a huge year-over-year jump in Prime Day sales.

The turn in trading sentiment was captured in the Invesco QQQ Trust (QQQ 180.27, +1.09, +0.6%), which had been down 1.1% and closed with a 0.6% gain.

Beyond Netflix, Dow components Goldman Sachs (GS 231.02, -0.42, -0.2%), Johnson & Johnson (JNJ 129.11, +4.42, +3.5%), and UnitedHealth (UNH 250.34, -6.64, -2.6%) also were in the news for delivering earnings results.  They all topped consensus earnings estimates, yet the reaction to their reports was mixed.

Elsewhere, Capitol Hill was a focal point today as Fed Chairman Powell appeared before the Senate Banking Committee to deliver his semiannual monetary policy report.

Mr. Powell covered a range of topics in the Q&A portion of the testimony, yet there was nothing that was ultimately surprising in his remarks, which included a contention that there were growing concerns among business contacts about trade issues. 

The Fed chair reiterated the view that improving economic conditions should allow for continued gradual rate hikes.  On a related note, the yield on the 2-yr note increased one basis point to 2.61% and the U.S. Dollar Index increased 0.5% to 94.97.

Market participants seemed to appreciate Mr. Powell's calm, but confident, delivery, and the recognition that his remarks didn't introduce any volatility into the marketplace.

That connection also went hand-in-hand with the intraday reversal.

The weakest-performing sectors on Tuesday were the real estate (-0.6%), energy (-0.4%), telecom services (-0.4%), and utilities (-0.1%) sectors.  The best-performing sector was the materials sector (+1.3%), yet its small weighting in the S&P 500 minimized its influence as a major market driver.

Reviewing today's economic data, which included Industrial Production and Capacity Utilization for June and the NAHB Housing Market Index for July:

• Industrial Production rose 0.6% in June (consensus +0.5%), while the May decrease was revised to 0.5% (from -0.1%). Meanwhile, Capacity Utilization ticked up to 78.0% (consensus 78.3%) from a revised reading of 77.7% in May (from 77.9%).
  • The key takeaway from the report is that manufacturing output bounced back sharply, reflecting good underlying demand, after a fire at a truck assemblies parts supplier undercut output levels in May.
• The NAHB Housing Market Index for July remained at 68 (consensus 69), unchanged from June.

Wednesday's economic calendar will feature the Housing Starts and Building Permits Report for June. In addition, Fed Chairman Powell will appear before the House Financial Services Committee at 10:00 a.m. ET for the second, and final, day of his semiannual monetary policy report to the Congress.

• Nasdaq Composite +13.8% YTD
• Russell 2000 +9.9% YTD
• S&P 500 +5.1% YTD
• Dow Jones Industrial Average +1.6% YTD

After Hours Summary: SAH -10%, MRTN +6%, UAL +3.5%, CSX +3% following earnings/guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: MRTN +6.1%, UAL +3.5%, CSX +3.2%, MLNX +1.5%

Companies trading higher in after hours in reaction to news: CHRS +15.4% (provides CHMP update for CHS-1701 application), TXT +1.6% (ahead of earnings), NSC +1.5% / UNP +1% (following CSX results), JNJ +0.4% (light volume; Janssen received FDA approval of SYMTUZA - the first and only complete darunavir-based single-tablet regimen for the treatment of HIV-1 infection), AMZN +0.3% (provides Prime Day update - small/medium-sized businesses have exceeded more than $1 bln in sales since yesterday; challenges some customers experienced shopping yesterday have been resolved)

A few airline names are higher following United (UAL) earnings:  LUV +1.5%, AAL +1.4%, DAL +1.1%

Uranium names lifting on reports of import probe/potential tariffs: UUUU +18.2%, UEC +9.7%, CCJ +2.2%, URA +0.5%

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: SAH -9.8% (issues downside Q2 and FY18 EPS guidance due to gross margin pressure in key brands), HCSG -5.6%, TXN -1.7% (sees Q2 EPS and rev just above estimates; Rich Templeton to reassume CEO roles in addition to his current role as Chairman; Brian Crutcher resigned as CEO due to code of conduct violations)

Companies trading lower in after hours in reaction to news: CARA -4.7% (commences proposed offering of 4.5 mln shares of common stock; had ~$132 mln of cash, cash equivalents and marketable securities as of June 30, 2018), CASI -3.6% (files for 17,283,937 share common stock offering by selling stockholders), PAG -3.5% / AN -0.6% / CPRT -0.3%(following SAH guidance), TLYS -2.3% (ticking lower; files for offering of 9.5 mln shares of Class A common stock by selling shareholders), GWRS -1.4% (commences common stock offering)