Putting a final point to an investigation started in December 2019, the European Union (EU) announced yesterday evening its conditional clearance for the acquisition of GrandVision by EssilorLuxottica. The green light is conditioned to the divestment, proposed by EssilorLuxottica, of a total of 351 stores in Belgium, Italy and the Netherlands, three countries in which the EU commission estimates that the merger would result in an abusively dominant position for the group.
The European authorization comes after the approval of the merger in the U.S., Russia, Mexico, Colombia and Brazil, leaving Chile and Turkey as the last countries in which it is still being investigated. The French-Italian group and the leading European retailer that both confirmed their intention to move ahead with the merger yesterday, now have until July 31 to settle their ongoing legal dispute and finalize the €7.2 billion transaction.
The EU commission said that it decided to approve the transaction after having received feedback from more than 4,300 optical retailers in Europe. During the investigation, it assessed in each country the position of both EssilorLuxottica and GrandVision in the supply chain, the alternatives available to other retailers in terms of “credible suppliers”, the proportion of stores selling EssilorLuxottica’s key brands and the expected reaction of consumers. The commission also researched through economic modelling the impact of potential price increases by the new merged group at wholesale and retail level.
Commenting on the final decision, Magrethe Vestager, its executive vice-president, said that the group’s enlarged retail footprint resulting from the merger could degrade the access of competing optical retailers to products of the EssilorLuxottica portfolio in Belgium, Italy and the Netherlands, eventually leading to reduced choice and higher prices for consumers in these three countries. Regarding the Italian market, the commission also added that the merger would bring together the two largest retailers in the country, resulting in the emergence of a market leader almost three times bigger than its main retail competitor, to the detriment of consumers.
Consequently, and as proposed by EssilorLuxottica, the group agreed to sell all of its 35 GrandOptical stores in Belgium, however keeping the brand name. In the Netherlands, 142 stores operating under the EyeWish chain will be divested, together with the brand name but the merged entity will be authorized to keep operating some stores from this chain under a new brand name. In Italy, EssilorLuxottica will have to sell a total of 174 stores, including all retail locations currently trading under its VistaSi banner as well as 72 stores from the “GrandVision by” chain. The VistaSi brand will be transferred to the purchasing company while the “GrandVision by” shops will either be rebranded to VistaSi or the buyer’s own brand.
With the acquisition of GrandVision, EssilorLuxottica would take another giant step in its vertical integration strategy. While the Franco-Italian group already operates about 9,000 retail locations worldwide, they are located in the U.S. for the most part. The addition of GrandVision’s network of more than 7,000 retail locations would therefore greatly extend its retail footprint in Europe, where the Dutch retail group makes about 90 percent of its revenues. The merged group would total annual revenues of close to €18 billion and a market capitalization of €64 billion.
Both companies had originally agreed on a €7.2 billion price tag for the 76.72 percent of GrandVision shares owned by HAL Optical Investments but discussions have stalled since the outbreak of the Covid-19 pandemic. In July last year EssilorLuxottica started legal proceedings against GrandVision in the Netherlands, claiming that it had breached its obligations in the management of its business during the sanitary crisis. The Dutch court ruled against the Franco-Italian group that appealed the verdict, and a final decision is now expected next month.
The Covid-19 has severely impacted the business of both parties that reported big drops in revenues for their last financial year. GrandVision topline went down by 13.8 percent year-on-year to €3,481 million and the company reported a negative net result of €45 million in 2020. For the same year, EssilorLuxottica’s annual sales declined to €14,429 million, representing a 17.0 percent drop from the previous year, and the annual net income – group share collapsed from more than €1 billion in 2019 to €85 million last year.
Since December 2019 and in spite of their legal dispute, both groups have repeatedly confirmed their intention to move ahead with the merger. In December last year, however, a report by Bloomberg, citing anonymous sources close to the matter, indicated that EssilorLuxottica was reconsidering the €7.2 billion transaction. In case the group would abandon the merger project, it would be reportedly liable to a €400 million termination fee. Now that the EU commission hurdle has been cleared, the negotiations will certainly accelerate with the July 31 deadline in mind.