Luxottica is sending contradictory messages regarding its supposed interest in Salmoiraghi & Viganò, Italy's largest eyewear retailer with more than 500 stores and an estimated market share of 9 percent. The chain is currently owned by Dino Tabacchi, brother of the former main shareholder and president of Safilo, and by his wife, Clelia Sabella.
Luxottica's chairman and main shareholder, Leonardo del Vecchio, categorically denied any interest in the chain. But the company's chief executive, Andrea Guerra, confirmed that Luxottica was asked to study the possibility of investing in the company. Guerra added that it is premature to forecast how the situation will unravel.
“The situation is pretty clear. On one side, you have someone who is looking for either a partner or to sell. On the other side, there are a number of players that are trying their best. We have been asked to join this project by many different parties. We're looking into it. I think it is too early to imagine anything else,” Guerra explained during a conference call on Luxottica's third-quarter results, without excluding then a possible follow-up.
According to the most important Italian financial daily, Il Sole 24 Ore, the French optical retailer Alain Afflelou, owned since recently by the private equity fund Lion Capital, is also a candidate. The newspaper said it impressed Salmoiraghi's shareholders with the money put on the table and the business plan presented to develop the Italian chain, but a spokeswoman for the French retailer, which is mainly a franchisor, denied any interest at this stage of the process.
Fielmann, the biggest German optical retailer, was also believed to be in the fray, but a spokesman for the company also denied that it was a candidate. Fielmann has been concentrating on the German-speaking market and has never made any external growth move.
As it turns out, Rothschild, which initially got a mandate to find a minority partner in Salmoiraghi, probably approached some big players, reported to be six in total including three private equity funds, feeling that they may be interested in taking a share in the company. We feel that, out of all the candidates mentioned in the Italian press, Hal would be the most likely interested party, but officials of the company could not be reached for comment.
There are persistent rumors that Hal is in fact interested in Salmoiraghi. The Dutch group already owns a big chain of high-end optical stores in Italy, Avanzi, along with many other chains in other European countries and elsewhere. It recently moved also into the wholesale segment, like Luxottica, by becoming the largest shareholder in Safilo.
A takeover of Salmoiraghi by Hal could help Safilo to sell more products through Salmoiraghi, although it has been traditionally a big supplier of the chain. It would also be an amusing twist of fate. Dino Tabacchi bought the chain in 2002 after having being been bought out from Safilo by his brother Vittorio. In turn, Vittorio let Hal take over the eyewear manufacturer as it was on the verge of going bankrupt.
The going price for the whole of Salmoiraghi is estimated at €200-250 million, compared with an appraisal of about €100 million when it was bought by Tabacchi.
Initially, Dino Tabacchi and his son Edoardo, a member of Salmoiraghi's board, mandated Rothschild to find a minority partner, apparently because of the difficulties the company is facing in Italy, which is undergoing a severe economic recession. They were reportedly inclined to sell only 40 percent of their shares. However, the latest reports indicate that the Tabacchis may be willing to shed majority control.
According to the latest reports, Salmoiraghi is boasting an enterprise value of between €200 million and €250 million, including debt. The Italian retailer was expected to close the financial year ended last Sept. 30 with sales of €170 million, down from the previous year's level of €183 million, and to post a sharply reduced net profit or a loss. Its Ebitda was expected to go down from €19 million to around €12 million, equivalent to 6.6 percent of turnover, against 10 percent the previous year.
The Tabacchis are now believed to be ready to take a backseat and retain only a 20 percent stake in Salmoiraghi. The stake could be obtained after selling the company and reinvesting some of the proceeds through a capital increase that would provide the chain with fresh funds to expand its network by 300 stores. The investment is deemed to be necessary for the chain to reach adequate economies of scale and generate a profit.
On the other hand, a deal with Luxottica would enable the Tabacchis to keep Salmoiraghi in Italian hands, so to speak. The acquisition could be easily financed by Luxottica, which is deleveraging its balance sheet faster than expected. Luxottica finished the third quarter with record free cash flow of €271 million.
Luxottica has demonstrated to be a savvy investor and is unlikely to be rushed into a deal, even though it has shown to be nimble in seizing opportunities. On the other hand, a takeover of Salmoiraghi would imply that the company would be running contrary to an earlier commitment to expand into the retail sector only in countries where it controls less than one-third of the market at the wholesale level.
While it has built up a huge retail network worldwide, starting with the U.S. where its market share was lower than Safilo's, the group's retail presence is very limited in Europe. It is largely confined to Sunglass Hut stores and some other sunglass specialists in some countries. In August, Luxottica finalized the purchase of more than 120 Sun Planet stores in Iberia that are due to be converted into Sunglass Hut stores.
At any rate, the sale process for Salmoiraghi is said to be proceeding swiftly, with a final conclusion expected within the next few weeks.