(Bloomberg Opinion) -- The $53 billion eyewear merger of France’s Essilor and Italy’s Luxottica was a tie-up that screamed strategic logic. But it’s been thrown off course by issues beyond its industrial merits.
The same danger applies to attempts by the combined company, EssilorLuxottica SA, to acquire GrandVision NV, a European optical retailer whose stores include Vision Express.
To recap: Back in January 2017, the lens-maker Essilor and the frame designer Luxottica agreed to merge. Combining lenses and frames made sense. It would create more firepower for research and development, pivot the group toward more expensive prescription lenses and defend it against the twin threat of online rivals and luxury companies seeking to make more of their own branded eyewear rather than letting other firms do it for them.
Unfortunately, the deal’s strategic benefits have been overshadowed by a bitter falling out between the billionaire Luxottica founder Leonardo Del Vecchio and Essilor’s boss Hubert Sagnieres, which led at one point to the threat of arbitration from Del Vecchio over alleged violations of the merger agreement.
The two men have since reached a fragile truce and are looking for a single CEO to better manage their differences. But given the context of their previous rancor, the new takeover talks with GrandVision’s controlling shareholder HAL to buy its 77% stake in the group look bold.
As with the first merger, the industrial logic is there. The Dutch target would add a significant optical retail presence in Europe, something that EssilorLuxottica lacks. Yet this offer has come much earlier than expected. While analysts at Bernstein speculated recently that an approach like this could be on the cards, they suggested it might be three to five years away.
Essilor and Luxottica only completed their merger in October, so the integration process is just getting started. With GrandVision they would have to incorporate another large business. At 28 euros per share, the price being discussed, GrandVision would be valued at 7.1 billion euros ($8 billion). That’s just 14% of EssilorLuxottica’s market capitalization but it’s far from insignificant, especially given how much work still needs to be done on the original merger.
GrandVision would further complicate the assimilation and could be another management distraction, particularly if there are competition issues to be dealt with (EssilorLuxottica already has a very dominant position in eyewear).
As part of the truce, the Franco-Italian company has handed operational control to Francesco Milleri from the Luxottica side and Laurent Vacherot from the Essilor camp, while they look for a single CEO. Still, given the animosity earlier in the year, there’s no guarantee the peace will last. It’s been hard for Del Vecchio, who owns 32% of the combined group, to relinquish his grip.
Should the GrandVision deal go ahead, EssilorLuxottica’s combination would become a double bet. The first is that the original merger will fulfill its strategic potential and deliver the promised yearly savings of up to 600 million euros. The second wager is that EssilorLuxottica can digest GrandVision while doing all of this. Given the peculiarities of this situation, and the personalities involved, both have long odds.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.
©2019 Bloomberg L.P.
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