Luxottica/Essilor: vision thing Premium
The merger makes sense if Luxottica’s founder bows out gracefully
Stepping back is tough for entrepreneurs, whose temperament inclines them to push forward. A €50bn merger with Essilor gives 81-year-old Leonardo del Vecchio, founder and executive chairman of Luxottica, a chance to retire. The logic of the deal is elegant: the first group specialises in sunglasses and spectacle frames, the second in lenses. It is up to Mr del Vecchio to make his eventual exit equally stylish.
Genuine mergers of equals are as rare in real life as Hogwartian beasts such as Bowtruckles and Occamies. The Italian and French groups nevertheless look closely matched. Luxottica’s enterprise value before the deal announcement was only €300m higher than Essilor’s at €24.7bn. Sales are heftier and margins lower, albeit partly due to tougher accounting. Neither company has agreed to pay a control premium.
Luxottica shareholders would get more of the combined equity, based on average prices over the past three months. But Essilor investors have the whip hand. Mr Del Vecchio has agreed to limit his family’s voting rights in the combined group to 31 per cent, despite a 38 per cent economic stake.
Cost synergies have a net present value of just €2bn (or €300m a year, the companies estimate), calculated conservatively. Market optics are friendlier. The capitalisation of the pair jumped €4.8bn, with three-fifths of the move in Essilor’s shares. That implies investors believe the combination can deliver top-end synergies of €600m a year. Half would be marketing synergies, whose existence sceptics doubt as much as that of the Demiguise, a JK Rowling creature prone to vanishing.
The grand vision of Hubert Sagnières, Essilor’s chairman and CEO, concerning the merged group’s potential to bring stylish eyewear to the whole of humanity may evaporate too. Potential for cross-selling — and the good old backloaded razor-and-blades pricing strategy — is glaring.
If there is a plank in the market’s eye, to wax biblical, it may have obscured antitrust and managerial issues. The EU’s antitrust authorities may truculently decide eyewear is one market rather than separately siloed frames and lenses. Mr del Vecchio may find it hard to relinquish the chairman and CEO role he will share pro tem with Mr Sagnières. Absent such problems, the future’s so bright you gotta wear shades.