Luxottica looks ahead to sealing deal with Essilor
Merger could open door to mega-deals that would put this one in the shade
© BloombergOn 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.