Merging for strategic reasons, not out of weakness; Luxottica upgraded to Buy
* An Essilor-Luxottica combination very likely to materialise at parity agreed on 13 January 2017 in our opinion
* Short-term newsflow un-supportive for both stocks, but absolutely not the reason for merging
* Essilor Buy, raise TP to EUR132 (from EUR125); upgrade Luxottica to Buy (from Hold), raise TP to EUR61 (from EUR54)
Maintain Buy on Essilor, upgrade Luxottica to Buy: Our new TPs for Essilor and Luxottica are based on (i) valuing the NewCo by adding the net present value of synergies to our standalone valuations of Essilor and Luxottica (unchanged), and (ii) using the exchange ratio accepted by Luxottica’s controlling shareholder Delfin: 0.461 Essilor share for 1 Luxottica share. Based on our new TPs (EUR132 from EUR125 for Essilor, EUR61 from EUR54 for Luxottica), Essilor and Luxottica imply 23% and 21% upside respectively