By Carol Ryan 

It is a good sign that Ray-Ban's feuding bosses have agreed to buy a smaller rival. But investors won't be fully reassured that eyewear giant EssilorLuxottica's double vision problems are fixed until after the summer vacation.

The company, created by a 2017 merger of French lensmaker Essilor and Italian sunglass company Luxottica, said Wednesday that it will buy majority control of Amsterdam-listed peer GrandVision. The owner of Ray-Ban and Oakley as well as eye-care chains such as Pearle Vision will initially pay $6.1 billion for a 77% stake in the Dutch business, before making a cash offer to buy out minority shareholders. Including GrandVision's net debt, the value of the transaction will total $8.9 billion.

The deal isn't a surprise, given that EssilorLuxottica said earlier this month it was in talks with the target. But it comes against an unpromising backdrop. Luxottica's powerful founder and chairman Leonardo Del Vecchio and Essilor's boss Hubert Sagnières have openly disagreed about who should lead the world's biggest eyewear company.

GrandVision boosts EssilorLuxottica's business in Europe, where most of the Dutch company's 7,000-plus retail stores are located and the acquirer is thin on the ground. As well as a big store network, it gets GrandVision's online businesses: contact lens e-retailer Lenstore and the Charlie Temple website that sells glasses direct to consumers.

There are some unusual transaction terms: If the deal doesn't close within 12 months, the price of each GrandVision share increases by 1.5%. And there is a break fee worth a hefty 5% of the total transaction value if the purchase doesn't go through. Management sounded confident that competition probes would move fast, given that European trustbusters already looked at the industry during their review of the Essilor-Luxottica merger.

In May, Messrs. Del Vecchio and Sagnières agreed to end their legal spat and find a new external CEO by the end of 2020. But the governance problems will again come into focus at the company's investor day in September. The two businesses are still being run separately, more than two years after the tie-up was announced. And EssilorLuxottica's management will have to explain in detail for the first time where and when it will find approximately $500 million of cost savings from the merger.

The GrandVision deal shows that c-suite conflict isn't holding up everything at EssilorLuxottica. Still, for investors, September is the real test of the company's vision.

Write to Carol Ryan at carol.ryan@wsj.com

 

(END) Dow Jones Newswires

July 31, 2019 09:26 ET (13:26 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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