Essilor confident on Luxottica deal despite EU probe
today Oct 24, 2017
French eyewear group Essilor said on Tuesday it was confident of securing European Union approval for its $54 billion merger with Italian peer Luxottica after the EU launched a full-scale probe into its impact on competition.
The world’s biggest optical lenses manufacturer, also confirmed its 2017 outlook after posting stronger third quarter revenues that were broadly in line with expectations.
The company had cut its annual revenue growth target in July, citing snags in China and Brazil, but its shares rose on Tuesday in response to higher sales and the general outlook.
Essilor Chief Operating Officer Laurent Vacherot said on a call with analysts that the group viewed the European Commission’s in-depth probe into the planned merger with Luxottica, launched last month, “with serenity and confidence”.
Chief Executive Hubert Sagnieres said in a statement Essilor planned to build on its third-quarter momentum between now and the end of this year “while also making major strides in its proposed combination with Luxottica.”
EU antitrust regulators opened a full-scale investigation into the Luxottica deal in September, saying the deal could reduce competition in the ophthalmic lenses and eyewear market. Their conclusions are expected by the end of February.
Luxottica and Essilor had declined to offer concessions during a preliminary EU review.
Vacherot told analysts substantial work had already been done on the merger.
“Authorities need time do to a quality job. The teams are very active and step by step we are preparing and progressing with confidence,” he said.
Essilor shares were up 4.21 percent at 105.25 euros at 1005 GMT, making the stock the best performer on France's benchmark CAC-40 index.
“Performance in U.S and EMEA (Europe, Middle East and Africa) has sequentially improved in each quarter and guidance suggests a similar development in the fourth quarter,” analysts at investment bank Jefferies wrote in a note to clients.
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Essilor and Luxottica, the maker of Ray-Ban sunglasses, agreed in January on a 46 billion euro ($54 billion) merger to create a global eyewear giant with annual revenue of more than 15 billion euros.
The merger has been approved by competition authorities in several countries including India, Japan and New Zealand but still needs clearance in North America and Europe.
A key regulatory concern for the EU is the possibility that the merged company might persuade opticians to buy eyewear and lenses as a package, leveraging Luxottica’s strong brand portfolio which also includes Persol as well as licensed names such as Chanel and Armani.
Competition lawyers have said that, to win clearance, the two companies may have to offer commitments to Brussels that the markets for lenses and frames will remain open to their rivals.
Given the Feb. 26 deadline set by the European Commission, the merger is not expected to be finalised before 2018 but Vacherot said the group was sticking to an initial target of closing the transaction “around the end of the year.”
Essilor said sales in the quarter ended September were up 2.5 percent on an organic basis to 1.75 billion euros. Analysts polled by Reuters had on average been expecting revenues of 1.77 billion euros.
Sales in North America were up 2.3 percent to 658 million euros despite the ravages in September of hurricanes such as Irma which led to several shop closures in the United States.
Luxottica reported weaker-than-expected third-quarter sales on Tuesday after it was forced to close some 570 shops in Texas, Florida and Puerto Rico.
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