Sunday 25 February 2018

Share watch: New glasses giant could be eye-catching for investors

‘Hip’ glasses have also become a staggeringly large industry. Stock Image
‘Hip’ glasses have also become a staggeringly large industry. Stock Image

John Lynch

Under a certain age, there is nothing worse than being out of fashion. Cool dudes dare not venture out with the wrong gear (white socks, I think, were once gravely offensive), while cool chicks have even more trouble 'accessorising'.

But trendy people of both genders must be equipped with the right eyewear, whether to help them see or to avoid the glare of the sun.

Glasses are now the cool essential, as Bono proved when he gave a pair of his 'wrap-around' shades to the Pope. 'Hip' glasses have also become a staggeringly large industry.

Italy's richest man is Leonardo Del Vicchio, the founder of Luxottica Group, which today is the world's biggest eyewear frame producer. He is currently getting even richer. Luxottica has agreed to a €50bn merger with the French eyeglass producer, Essilor International.

Should the deal be approved, it will create an organisation with sales of €15bn, 140,000 employees in 150 countries, with strong brands in both the eyewear and sunglasses sector.

Essilor is the world's largest producer of eyeglass lenses along with the coating and tints that go with them.

The company has a number of brands, including the Varilux lens, which is the world's first to allow for near, long and intermediate vision. It also provides eye protection against UV rays with its Crizal brand and an eyeglass lens for fog under the Optifog brand. It also markets a range of sunglasses and reading glasses under the Foster Grant brand.

The company markets its products globally with Asia and the Middle East accounting for some 16pc of total revenue. North America and Europe have sales exceeding 30pc each and Latin America accounts for the remainder. It also believes that China is facing a visual health crisis and there will be a lot of glasses needed in that part of the world.

The other party to the merger is Group Luxottica. It was founded in 1961 by Mr Del Vicchio. Now an octogenarian, he still controls two-thirds of the stock. It designs, makes, distributes and sells frames for traditional glasses, sunglasses and designers. Its branded products include Ray-Ban and Oakley (beloved of sports fans). Under licensing agreements, it markets other well-known brands such as Prada, Chanel, Dolce and Gabbana and Ralph Lauren.

The company sells both to the wholesale and retail market. Retail sales dominate, accounting for almost 60pc of group turnover. This is not surprising, as the company has a considerable global retail footprint, with 7,000 shops trading under names such as Sunglass Hut, Lenscraft, Pearle Vision and Oakley among others. Europe accounts for 40pc of Luxottica's business. The US and emerging markets have 25pc each.

The proposed merger should complement both companies, create economies of scale and have significant potential savings, and be quoted in Paris and Milan.

Luxottica, with its portfolio of strong brands and retail footprint, needs a quality lens producer like Essilor. The merger also solves a Luxottica management problem. In the past few years, three CEOs have resigned, and the share price suffered.

Essilor can also benefit from the merger, helping it meet the growing demand of the world population and the need to develop new and innovative products. Of the seven billion people globally, more than 60pc are in need of spectacles, but only 25pc wear glasses.

The new entity, Essilor Luxottica, will have 15pc of the €90bn global eyewear market. In addition, it will have more than 50pc of the world sunglasses market.

The arrangement looks like a good deal for both companies, but is it a good deal for customers? That is a question for competition regulators. However, the real winner in the deal is Mr Del Vicchio, who will end up the largest shareholder of the merged group, with more than 30pc of voting rights. He intends to remain as executive chairman for another three years until he is 85 years old - some man.

Nothing in this section should be taken as a recommendation, either explicit or implicit, to buy any of the shares mentioned

Irish Independent

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