Blog Coverage Italy's Luxottica Group and France's Essilor Unite Set to Dominate the Optical World

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LONDON, UK / ACCESSWIRE / January 18, 2017 / Active Wall St. blog coverage looks at the headline from Luxottica Group S.p.A. (NYSE: LUX). Luxottica, manufacturer of iconic Ray-Ban and Sunglass Hut brands has been acquired by Essilor International, the world's largest prescription lens manufacturers, on January 16, 2017. The transaction is valued at approximately €46 billion (approximately $49 billion). Register with us now for your free membership and blog access at:

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One of Luxottica Group's competitors within the Apparel Stores space, The Gap, Inc. (NYSE: GPS), is estimated to report earnings on February 23, 2017. AWS will be initiating a research report on Gap in the coming days.

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The merger will combine the strengths of the two companies creating an eyewear company that deals in everything from lenses to frames to eyewear.

Luxottica's brand portfolio includes popular brands like Ray-Ban, Oakley, Vogue Eyewear, Persol, Oliver Peoples, and Alain Mikli. It also has licences to manufacture frames for luxury brands like Giorgio Armani, Burberry, Bulgari, Chanel, Dolce & Gabbana, Michael Kors, Prada, Ralph Lauren, Tiffany & Co., Versace and Valentino. Its business model covers the whole gamut in eyewear from design and production to logistics and distribution.

Essilor, on the other hand, caters to the customized prescription lenses and its brands include Varilux, Crizal, Transitions, Eyezen, Xperio, Foster Grant, Costa, and Bolon. Its business model also covers the entire process in prescription lenses from design to, manufacturing to marketing and distribution. It also manufactures and sells specialized equipment and instruments for eyecare professionals.

Commenting on the merger Chairman and CEO of Essilor, Hubert Sagnières said:

"By joining forces today, these two international players can now accelerate their global expansion to the benefit of customers, employees and shareholders as well as the industry as a whole."

Chairman of Delfin and Executive Chairman of Luxottica, Leonardo Del Vecchio added:

"Finally, after fifty years, two products which are naturally complementary, namely frames and lenses, will be designed, manufactured and distributed under the same roof."

Terms of the merger

The transaction is between Essilor and Delfin Sarl, the holding company of of the Del Vecchio Family which owns a majority stake in Luxottica. Delfin currently holds approximately 62% stake in Luxottica and will sell its complete stake to Essilor. In exchange Delfin will receive newly issued shares of Essilor. For each Luxottica's share, it will receive 0.461 share of Essilor. Following the exchange, Essilor will acquire the remaining outstanding shares of Luxottica from the market at the same exchange value as per the provisions of the Italian Laws. Once the shares of Luxottica are acquired, the Company will be delisted and will be merged with Essilor.

Following the merger, the new merged company will be named EssilorLuxottica and will be wholly owned subsidiary of Essilor. EssilorLuxottica is expected to be headquartered in Paris and listed at the Paris Stock Exchange. Essilor will become the holding company of EssilorLuxottica and will operate as Essilor International. It is estimated that Delfin will end up owning 31%-38% in the new company and will be one of the largest shareholders. Voting rights of any shareholders of EssilorLuxottica will be capped at 31%.

The current Executive Chairman of Luxottica, Leonardo Del Vecchio, will be the Executive Chairman and CEO of EssilorLuxottica whereas the current Chairman and CEO of Essilor, Hubert Sagnières will be appointed as the Executive Vice-Chairman and Deputy CEO of EssilorLuxottica. Both Leonardo Del Vecchio and Hubert Sagnières will hold equal powers as Chairman and CEO in EssilorLuxottica, they will jointly continue with their current roles in Luxottica and Essilor International. The new company's Board of Directors will have 16 members and also have equal representation with eight members each from Luxottica and Essilor.

The merger is expected to be completed in the second half of 2017. The transaction is subject to Essilor's Works Councils' information and consultation procedure according to French law, clearance from relevant anti-trust authorities, and completion of all closing conditions.

Joint Synergies and Benefits

The merger will create an eyewear behemoth that will bring frames and lenses under a single umbrella. Both companies own the best production facilities, R&D culture and a global distribution network. The merger will allow them to leverage their capabilities to capture the market opportunities and become a dominant player in the eyewear market.

The merger will also integrate over 140,000 employees and presence in over 150 countries. The merged company will have combined revenue of €15 billion and a combined EBITDA of approximately €3.5 billion, based on both companies' 2015 performance. Both companies have a healthy balance sheet and strong cash flows. The merger will thus create a financially stable and fit organisation with strong growth prospects. It is well equipped to take on the challenges of the growing competition in the sector.

The merger is also expected to generate cost and revenue synergies of over €400 million-€500 million in the mid- to long-term period.

Background

Leonardo Del Vecchio had founded Luxottica in 1961 and grew the company to its current avatar. He is now 81 years old has been looking for a merger with Essilor since 2014. He has clearly stated that none of his six children will succeed him and he is looking to retire soon. He has been having trouble managing the turmoil in the top management of his business. The current transaction is tailor made to solve his issues.

Both companies' future plans were leading to a major battleground, as Essilor had plans to enter into the manufacturing of frames and Luxottica had plans to enter the lenses market. This merger brings an amicable solution to a potentially explosive situation.

Stock Performance

Luxottica Group's share price finished yesterday's trading session at $56.73, jumping 8.22%. A total volume of 461.55 thousand shares exchanged hands, which was higher than the 3 months average volume of 98.55 thousand shares. The stock has advanced 23.51% and 16.37% in the last three months and past six months, respectively. The stock is trading at a PE ratio of 33.25 and has a dividend yield of 1.75%. The stock currently has a market cap of $27.10 billion.

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