EssilorLuxottica may soon get even bigger. The Charenton-le-Pont, France-headquartered eyewear titan – which boasts a market cap of 58.65 billion EUR ($69.35 billion) and the title of the world’s largest eyewear group – has gotten the go-ahead from the European Commission to acquire a 76.72 percent ownership interest in multi-national optical retailer GrandVision in exchange for 7.3 billion EUR ($8.7 billion). Following an “in-depth” investigation, which centered on the potential effects of the “combination of EssilorLuxottica’s strong market position in the wholesale supply of optical products and GrandVision’s leading presence in the retail distribution of these products,” the European Commission has given the parties the green-light – albeit under a number of conditions.
Following the competition-centric market probe that it initiated in February 2020, the European Commission revealed on Wednesday that it “had concerns that the transaction, as initially notified, could worsen rival opticians’ access to EssilorLuxottica’s products in Belgium, Italy and the Netherlands.” In those countries, the Commission found that the merged EssilorLuxottica-GrandVision entity “would have the ability and incentive to leverage its important position in the wholesale supply of frames to make it more difficult for competing retailers to access eyewear manufactured and distributed by the merged entity, for example by reducing choice or raising prices charged to retailers for frames,” among other things.
In Italy, in particular, the European Union market regulator – which says that it has “the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds and to prevent concentrations that would significantly impede effective competition in the European Economic Area or any substantial part of it” – asserted that the merger transaction would “create the largest player on the optical retail market, almost three times as large as the second player, [and] this would considerably weaken competition in the Italian market, ultimately harming consumers.”
As a result of these issues, the Commission agreed to approve the transaction, but only if the merged EssilorLuxottica-GrandVision make good on their offer to divest themselves of 350 of optical retail businesses in Belgium, the Netherlands and Italy. Specifically, EssilorLuxottica-GrandVision must sell the 35 stores in GrandVision’s GrandOptical chain in Belgium; a total of 174 stores in Italy, including all of EssilorLuxottica’s VistaSì chain, as well as 72 stores in GrandVision’s“GrandVision by” chain; and 142 physical outposts from the Eye Wish chain in the Netherlands, and the relevant intellectual property rights. GrandVision noted in a statement on Wednesday that the “merged entity will keep some stores from this chain, but will have to rebrand them under a new name.”
The European Commission found that with these conditions in effect (which are narrower than the ones that it initially proposed), the merger would “no longer raise competition concerns” as these “remedies limit the retail footprint of the merged entity and reduce its incentive to restrict competitors’ access to optical frames in Belgium, Italy, and the Netherlands, while creating or strengthening a credible optical retail competitor at national level in these countries.”
Even with clearance from the EU, the U.S., Russia, Mexico, Colombia and Brazil, EssilorLuxottica and GrandVision entity are still waiting on approval from regulatory bodies in Chile and Turkey before the deal can close – ideally by the parties’ previously-established July 31, 2021 date. As for whether the deal will, in fact, come into fruition by that date, or whether the parties will face additional issues is unclear. After all, it has not exactly been smooth sailing since EssilorLuxottica announced its plans to acquire GrandVision in July 2019.
A year after the big reveal of the more than $8 billion deal, EssilorLuxottica made headlines in July when it sued GrandVision in order to obtain informationrelated to the latter’s efforts in connection with the COVID pandemic, namely, “the way GrandVision has managed the course of its business during the COVID-19 crisis, as well as the extent to which GrandVision has breached its obligations under the [merger] agreement.” In its July 18, 2020 filing in a court in the Netherlands, EssilorLuxottica argued that “despite repeated requests, GrandVision has not provided this information on a voluntary basis, leaving EssilorLuxottica with no other option but to resort to legal proceedings.”
The dispute ended up in arbitration, GrandVision revealed on July 30. Citing GrandVision’s announcement, S&P Global reported this past summer that “GrandVision ‘strongly disagreed’ with EssilorLuxottica’s claims and said it initiated arbitration proceedings to obtain confirmation that it is not breaching their agreement.” The target company also asserted that “it hopes arbitrators can ensure EssilorLuxottica’s compliance with its obligations under the deal, particularly regarding merger clearance processes.”
In a response of its own, EssilorLuxottica – which was formed in 2018 by way of a $50 billion-plus mega-merger between French lenses-maker Essilor and Italian eyewear-titan Luxottica, the latter of which owns brands like Ray-Ban, Oliver Peoples, and Oakley, to name a few, and serves as the licensee for fashion brands, such as Bulgari, Burberry, Chanel, Dolce & Gabbana, Prada, Tiffany & Co., Valentino, and Versace, among others – stated that it considered the move by GrandVision “a surprising and obvious attempt … to detract from GrandVision’s breaches under the support agreement and its failure to provide EssilorLuxottica with required information.”
“Despite EU approval, the pandemic’s effect on retail and [the] legal spat with GrandVision have led EssilorLuxottica to consider its options, including renegotiating the price or even walking away from the transaction,” according to Bloomberg, which cites “people familiar with the situation.” As for what might keep the parties at the table: “Under the deal terms, EssilorLuxottica could be liable for a 400 million-euro termination fee” if it opts to call it quits.
Sounds a bit like LVMH Moët Hennessy-Louis Vuitton v.Tiffany & Co. part II, doesn’t it?