The home of Ray-Ban sunglasses and Sunglass Hut, EssilorLuxottica SA, has reached an agreement to buy GrandVision NV, a deal valuing the smaller Dutch optical retail chain at as much as 7.3 billion euros ($8.1 billion).
You don’t need 20-20 vision to see who was the driving force behind the Italian-French eyeglass conglomerate's purchase. Leonardo Del Vecchio, EssilorLuxottica's forceful chairman and biggest shareholder, said in the deal statement the transaction was the realization of a long-held dream for him.
Del Vecchio has already combined his Italian eye-frame designer Luxottica, home to many designer brands, with the French lens maker Essilor in a $53 billion merger. GrandVision adds a third element: An optical retail division that spans Europe, as well as across 40 countries, online, and 7,000 stores, including the Vision Express chain. This gives the group even more control over the eye-care process, from manufacturing to contact with end customers. Analysts at Bloomberg Intelligence don’t, however, foresee any EU antitrust problems—since the first much-bigger deal was waved through.
GrandVision operates under retail brands including Brilleland and For Eyes. In addition to its well-known sunglass labels, EssilorLuxottica owns store chains like LensCrafters, Pearle Vision, Target Optical and Sears Optical. The company also has online retail outlets such as EyeBuy Direct and Vision Direct.
EssilorLuxottica eyewear brands include an array of designer labels such as Armani Exchange, Burberry, Bulgari, Brooks Brothers, Chanel, Dolce & Gabbana, Michael Kors, Prada, Polo, Valentino, Tory Burch, and Versace.
That the GrandVision purchase was so personally dear to Del Vecchio perhaps bodes well for future harmony at EssilorLuxottica, which had been riven by tension between the 84-year-old Italian billionaire and Hubert Sagnieres, the Essilor boss and vice-chairman of the combined company. The two did reach a fragile truce back in May, but making an $8 billion purchase is certainly bold given that the original Essilor-Luxottica merger was only completed in October.
The fact that the two sides have managed to patch things up to the extent they were able to negotiate this chunky deal is encouraging.
EssilorLuxottica certainly seems to be Del Vecchio’s show now, perhaps inevitably given his control of a 32% stake. There are similarities with another Italian billionaire, Stefano Pessina, who built his Walgreens Boots Alliance Inc. empire through a series of deals in Europe and then the U.S. to control pharmaceutical distribution and retail.
Del Vecchio and Sagnieres may have been motivated to make a move on GrandVision so quickly because of worries about potential rival interest from private equity, which is awash with cash and snapping up unloved companies. The Dutch target’s share price had languished before Bloomberg reported the deal talks earlier this month.
Moving forward with GrandVision
As it is, a 33.1% premium to the closing price on July 16, the day before the talks were disclosed, looks palatable to both sides. GrandVision shares rose to 26.70 euros ($29.7) on Wednesday, just below the offer price of 28 euros (rising to 28.42 euros ($31.6) if the transaction doesn’t close within 12 months). Bernstein analysts estimate that the purchase would be 5%-6% accretive to earnings per share in 2019 and 2020, without synergies.
Still, Del Vecchio and Sagnieres have a lot on their plate now. Bringing together Essilor and Luxottica has only really just begun in earnest, in an effort to generate promised annual savings of 600 million euros ($667.62 million).
Unusually, they haven’t put a figure on the cost savings they might reap from GrandVision. More detail will come in time, perhaps at an investor day in September, but not calculating the potential benefits is disappointing.
The greatest hazard is that hostilities between Del Vecchio and Sagnieres reignite. With plenty still riding on the original deal, and a chunky acquisition now in the mix, recruiting a single chief executive to oversee the integration is more important than ever. They’ll also need considerable diplomatic skills to navigate the diverse factions on the board.
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