UK Markets closed

Patching Things Up After a $52 Billion Brawl

Chris Hughes

(Bloomberg Opinion) -- It is the end of the beginning of the brawl at EssilorLuxottica. On Monday, the maker of Ray-Ban and Oakley sunglasses outlined a fresh leadership revamp to end the hostilities between chairman and dominant shareholder Leonardo del Vecchio and his deputy.

The overhaul still fails to address the flaws in the company’s governance – and has regrettably divided the minority shareholders who have been pressing for a long-term resolution to the conflict.

EssilorLuxottica was created out of the October merger of Essilor, a Paris-based lense maker, and Luxottica, the maker of frames controlled by Del Vecchio. The two sides nominated an equal number of delegates to the combined company’s 16-strong board. Del Vecchio supposedly ran the show as effective co-chief with former Essilor CEO Hubert Sagnieres, now installed as vice chairman. This balanced arrangement soon descended into acrimony, with each accusing the other of a power grab.

Minority shareholders including Baillie Gifford and Fidelity International sought to resolve the feud by nominating two independent directors at this Thursday’s annual meeting. Separately, Valoptec, an employee shareholder group already represented on the board, also asked to appoint an extra director.

The possibility of, at the very least, a sizable protest vote must have scared Del Vecchio and Essilor’s board. The company had to do something. It is handing operational control to Francesco Milleri, from the Luxottica side, and Laurent Vacherot, from the Essilor side. At the same time, the group will keep looking for a single CEO. Neither Milleri nor Vacherot are putting themselves forward for the job, the company says.

This looks like progress. The merger integration can now commence. If the root problem is the animosity between Del Vecchio and Sagnieres, then perhaps different co-heads can work.

Everything, though, will depend on the new CEO appointment. Will that person really have sway? Or will the role be conceived in such a way as to allow Del Vecchio to be a backseat driver?

Valoptec has executed a complete u-turn and is now against adding independent directors to break the board impasse. Embarrassingly, its former nominee, Peter Montagnon, has demonstrated his independence, condemning the agreement as a sham that perpetuates the risk of Del Vecchio gaining control without paying a premium for it. Montagnon is, rightly, calling for a lead independent director to be appointed.

The reality is that it’s hard to have confidence in the current setup after recent events. Adding direct minority representation would at least reduce the likelihood that votes will deadlocked. There can be no real resolution to this problem until a CEO is brought in from outside.

Thankfully, minority shareholders are continuing this fight – even if they have only a remote chance of winning. Add Valoptec’s holding to Del Vecchio’s 32%, assume a 75% turnout, and they will struggle to achieve a majority. But a protest vote would still have value. The importance of turnout means every vote counts.

The mystery is why Del Vecchio brought the full extent his rancor into the open with a rare interview in Le Figaro newspaper in March. He already had influence. He would have been in a strong position in 2021 when the current balanced board arrangement is to expire. It will now be harder for his protege Milleri to take over, and minority shareholders are now massing against him.

There will be more scuffles along the way. This company’s governance is long going to be a battleground.

To contact the author of this story: Chris Hughes at chughes89@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

For more articles like this, please visit us at bloomberg.com/opinion

©2019 Bloomberg L.P.