Newsmaker - Luxottica's merger helps Del Vecchio manage family risks

Brittany BishopJan 17, 2017

Essilor said the merger is created to meet growing global demand for corrective lenses, sunglasses and luxury frames.

The $49 billion deal, expected to close in the second half of the year, will create "EssilorLuxottica", with total revenue of about $16 billion and more than 140,000 employees. Delfin is owned by Luxottica's founder and executive chairman Leonardo Del Vecchio.

A year ago Luxottica announced the departure of its third chief executive in 17 months when Adil Mehboob-Khan, a former Procter & Gamble executive, stepped down and Del Vecchio tightened his grip on the group by taking on executive powers.

"The strategic rationale is strong", JPMorgan Cazenove analysts said in a note, adding that the deal defuses the risk of growing competition between two groups that had been encroaching on each other's areas of expertise in recent years, with Essilor buying online retailers and Luxottica investing in lens manufacturing.

The all-share deal is one of Europe's largest cross-border tie-ups and brings together Luxottica, the world's top spectacles maker with brands such as Ray-Ban and Oakley, with leading lens manufacturer Essilor.

It will see the creation of the global leader in all things optical - frames lenses, equipment, testing, brands and retailing - and included in it as a small component will be Australia's OPSM, as well as its US-based Sunglass Hut chain.

Investor reaction was eye-popping: Shares in Luxottica surged about 9%, while Essilor soared about 14%.

Del Vecchio, a child orphan who spent some of his childhood in a poorhouse, is Italy's richest man, worth more than €20 billion. Essilor was up by more than 12 percent and Luxottica was up by more than 7 percent at 11.30 am London time.

Shares jumped in both Luxottica, which is based in Milan, and Essilor, headquartered near Paris.

Del Vecchio's Delfin agreed to contribute its 62 percent stake in Luxottica to Essilor in exchange for stock in the newly created group that will be listed in Paris.

Essilor and Luxottica projected the newly combined company would progressively generate revenue and cost synergies ranging from roughly $424 million to $636 million in the medium term. Aside from its ownership of the major brands above, it also owns Sunglasses Hut and has the licence for the likes of Burberry and Ralph Lauren, Business Insider reports.

The biggest shareholder in the new company will be the Del Vecchio family. Essilor will then make a mandatory offer for the remaining Luxottica stock at the same exchange ratio.

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