January 16, 2017, will go down in the annals of optical history as its Brexit, or even Trump moment. The €46bn merger between Essilor and Delfin, the group controlling Luxottica, will change the landscape of the global optics sector forever.
The merger, which will see EssilorLuxottica control more than 25% of the global spectacle and contact lens market. According to 2015 data from Euromonitor, single entity companies, Johnson & Johnson, Safilo and Hoya control just 3.9%, 3.7% and 3.2% of the market, respectively. The remaining 62% comprises all other businesses. Together, Essilor and Luxottica have annual revenue of €15bn from their operations in 150 countries with 140,000 staff. They have also been clear market leaders since 2010 with eyewear sector sales growth more than double that of the likes of Zeiss, Safilo, Novartis and Hoya.
In a joint statement, the companies said the newly formed group would be a better position to seize opportunities in an eyewear market where there was strong demand from an increasing need for corrective eyewear and an equally strong appetite for brands.
The deal will make Luxottica’s founder, Leonardo Del Vecchio (pictured left), the largest single shareholder in the combined company, with an approximate 30% stake. He will also serve as executive chairman and CEO of the new company. Delfin will then own between 31% and 38% of the shares of EssilorLuxottica and would be its largest shareholder. A 16-strong board of directors will be created, made up of eight members from each company.
Hubert Sagnières, chairman and CEO of Essilor said: ‘Our project has one simple motivation: to better respond to the needs of an immense global population in vision correction and vision protection by bringing together two great companies, one dedicated to lenses and the other to frames.
‘With extraordinary success, Luxottica has built prestigious brands, backed by an industry state-of-the-art supply chain and distribution network. Essilor brings 168 years of innovation and industrial excellence in the design, manufacturing and distribution of ophthalmic and sun lenses. 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.’
The news will come as little surprise for most, as ‘who would buy who’ has been the subject of many rumours in recent years. In 2014, the companies admitted that discussions had taken place about a merger but were later shelved. Recently, however, the two companies had appeared to heading in the same direction and a deal between the two had started to look unlikely. Luxottica has moved into prescription lens manufacturing with a new plant for Ray-Ban in Agordo, while Essilor’s expansion into online spectacle lens retailing has been well documented. The deal has defused the risk of growing competition between the two.
Essilor has not been the only potential lens manufacturer mooted to join forces with Luxottica. Carl Zeiss was the subject of merger speculation in 2016 after the nature of the growing working relationship was detailed in an investor analyst presentation in March that year. Luxottica’s Lenscrafters stores expanding its Carl Zeiss Clarifeye digital eye exam suite in its practices across the US.
The dynamic of the Zeiss relationship is just one that will be under the microscope in the coming months. In Australia, Luxottica’s 2003, $550m investment in the OPSM retail chain has been locked in battle with Specsavers. According to a report in The Austrailian, OPSM has around 35% market share in the country, compared to Specsavers’ 20%. As a result of the deal Essilor will now supply Specsavers.
Dreamland
On the merger, Leonardo Del Vecchio, chairman of Delfin and executive chairman of Luxottica Group said: ‘With this agreement my dream to create a major global player in the eyewear industry, fully integrated and excellent in all its parts, comes finally true. It was some time now that we knew that this was the right solution but only today are there the right conditions to make it possible. The marriage between two key companies in their sectors will bring great benefits to the market, for employees and mainly for all our consumers. Finally, after 50 years, two products which are naturally complementary, namely frames and lenses, will be designed, manufactured and distributed under the same roof.’
The agreement will settle the nerves of those worried about succession planning at the top of Luxottica. The past three years have been turbulent at board level within the company, with a revolving door of CEOs and trials of different structures. Del Vecchio stepped back into the breach two years ago to stabilise things at the top, but the merger will further boost confidence now that Sagnières represents a solid leader for the future.
With the ink barely dry on the contract, it is still very early to assess the full impact of the merger on optics and importantly, independent practices here in the UK. Many, including P&A Eyecare in Crief, Scotland, have already stopped working with the companies, but are concerned about the potential monopoly being created. ‘I made the decision to stop working with Luxottica and Essilor some years ago. My main frustration with both is the way in which they try to “befriend” the independent practice owner and convince us that we need their product in our practice, while at the same time both companies are selling direct to consumers through optical stores, department stores and online websites.
‘They stopped becoming a supplier and became competition. Their merger is further evidence of a monopoly in our industry and I would encourage any practice owner to explore independent alternatives,’ said director James Michael.
TD Tom Davies CEO Tom Davies also raised the issue of too much control over the sector. ‘Both already dance around anti-competition rulings, it will be interesting to see how they get around them,’ he said.
However, Davies was optimistic about the opportunities: ‘With the combined retail and online presence, they are going to change the industry as we know it and this will present opportunities for niche service-led opticians and it will hurt the multiples and smaller online companies.’
Specsavers co-founder Doug Perkins was more pensive: ‘It’s a colossal control of the market on a global basis – who knows what the end game is? Essilor has made significant investments in automation and the internet, which is going to be significant.
‘In the UK at the moment it will have an effect on the supply chain more than high street retail. The line where manufacturers were different from retailers has gone.’
Timeline
1849 Paris-based spectacle-frame makers take the name of Société des Lunetiers (SL)
1899 SL comprises three lens factories and four that make frames
1927 SL starts selling corrective lenses
1959 Varilux progressive lens is born
1961 Leonardo Del Vecchio establishes Luxottica
1971 First Luxottica eyewear collection presented at MIDO
1972 Essilor Group formed through merger of two leading optical groups
1975 Essilor listed on French stock market
1979 Essilor expands to Asia with manufacturing site in Philippines
1981 Luxottica begins global expansion with German subsidiary
1986 Essilor of America formed, headquartered in Dallas, Texas
1988 Luxottica opens licence portfolio with Giorgio Armani deal
1990 Luxottica lists on the New York Stock Exchange
1991 Essilor joint venture results in world’s first photochromic lens Transitions
1992 Essilor brings Crizal lens to market
1993 Varilux Comfort progressive lens launched
1995 Luxottica enters retail with acquisition of LensCrafters, Persol acquired
1999 Ray-Ban acquired by Luxottica
2001 Luxottica announces the acquisition of Sunglass Hut chain
2003 Luxottica confirms licence agreements for Versace, Prada brands
2007 Luxottica acquires California-based sunglass giant Oakley
2009 Essilor makes first online acquisition with Framesdirect.com. The same year, Essilor launches Mr Blue
2010 Essilor acquires Shamir Optical and Signet Armorlite
2013 Luxottica acquires Alain Mikli International. Essilor launches Crizal Prevencia to protect against harmful blue-violet and UV light
2014 Luxottica acquires glasses.com. Essilor acquires 100% of Transitions Optical
2017 Essilor-Luxottica merger announced, worth reported $50bn
