French lens maker Essilor International SA agreed to buy Luxottica Group SpA, the maker of Ray-Ban sunglasses, for about 22.8 billion euros (US$24 billion), combining the largest manufacturer and retailer in eyewear.
Luxottica investors will get 0.461 of an Essilor share for each share they own, the Italian and French companies said in a statement yesterday.
The bid is worth 47.07 euros based on Friday last week’s share price, 5 percent lower than Luxottica’s close of 49.56 euros.
Leonardo Del Vecchio, Luxottica’s 81-year-old founder and controlling shareholder, agreed to the deal and will become executive chairman and chief executive officer of the new company, EssilorLuxottica, which will have more than 15 billion euros in annual revenue.
Del Vecchio is to be the single largest shareholder with his Delfin holding company owning a stake of between 31 and 38 percent.
The deal creates a branded goods giant with a market value that rivals the second-biggest luxury maker, Hermes International.
The companies said they expect revenue and cost synergies of 400 million euros to 600 million euros in the medium term.
Essilor is the largest manufacturer in the industry and Luxottica the biggest retailer, according to Chris Cooper, an analyst at Jefferies.
Essilor Chairman and chief executive officer Hubert Sagnieres is to become executive vice chairman and deputy chief executive officer with equal powers.
Delfin agreed to contribute its 62 percent stake in Luxottica to Essilor in exchange for stock in the newly created group.
Milan-based Luxottica, which also makes frames for luxury brands such as Armani, Chanel Prada, has a market value of about 24 billion euros as of Friday last week, compared with about 22 billion euros for lens maker Essilor.
Luxottica is also developing voice-activated glasses that coach cyclists and runners.
“This is a merger where they will be able to complement each other and create economies of scale on the supply chain,” said Catherine Lim, a Bloomberg Intelligence analyst. “Luxottica is a licensee of major branded eyewear while Essilor has been more focused on making lenses.”
Luxottica increasingly competes with large luxury players, such as Kering, in a global eyewear industry worth about US$121 billion last year, according to data from Euromonitor.
The company’s expansion into lenses is attractive amid rising consumer demand and as the segment offers high margins, according to Bloomberg Intelligence.
Demand for eyewear is expanding in emerging markets with more than 2.3 billion people in Asia, Africa and Latin America needing optical frames, according to Exane BNP Paribas.
The two companies have been on a “collision course,” Exane said in a note in October last year as Luxottica moves into lens manufacturing while Essilor advances into frames and acquires control of online eyewear retailers.
Lens manufacturing will be a big deal for Luxottica as it makes it independent for sun and prescription lenses, it said.
Luxottica in March last year announced it will seek to accelerate growth by investing more than 1.5 billion euros over three years.
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