Announced on the first day of the MIDO show last month, the news of a letter of intent signed between the two big groups from Italy and the USA sent shock-waves through the fair. A very concise and cautious joint statement said they had struck a ?non-binding? agreement to ?explore a strategic alliance involving the combination of their wholesale and manufacturing businesses worldwide.? De Rigo's extensive retail operations in Spain and the UK ? General Optica and Dollond & Aitchison ? would be excluded from any deal.

The two companies have already started to study their respective balance sheets in-depth in view of a financial merger. However, if they cannot agree on their respective valuation, the partnership between De Rigo and Viva International may be limited to cooperation in certain countries. In that case, observers note that the Italian company is probably more interested in finally gaining a strong foothold in the USA, while Viva is already doing relatively well in Europe directly and through partnerships with various local companies such as Ferdinand Menrad in Germany and INDO in Spain.

One of the beauties of the proposed merger is the fact that both De Rigo and Viva generate a similar turnover at the wholesale level, making it possible for their respective shareholders to avoid being controlled by the other party, thus permitting a more balanced partnership. While Viva would not reveal its numbers and De Rigo is publicly quoted, the US company's annual revenues are probably going to be close to those of the Italian company's non-retail operations this year, or about $140 million.

It seems that De Rigo had previously explored a possible partnership with a bigger private American company, Marchon, which would have gobbled up the Italian one in a merger considering that it has annual sales of more than $400 million. There were reportedly also talks with Luxottica, which works with De Rigo in Japan and which apparently offered to buy its entire business for €257 million.

If consummated, the merger would come at a time where Ennio De Rigo, controlling shareholder of the eponymous firm, has reached the age of 65. He has already begun to delegate some responsibilities to his 35-year-old son Mauro and to his 38-year-old son-in-law Maurizio Dessolis, the company's creative and financial directors, who were promoted as vice chairmen just before the preliminary deal with Viva. Dessolis is married with Barbara De Rigo, who is in charge of marketing for the company. Harvey Ross, who founded Viva in 1978, is 64 years old and his children are not involved in the business. Like Ennio De Rigo, Ross says he wants to continue to play a major role in the company, although he has delegated many functions to younger executives, too.

Besides, De Rigo and Viva are complementary in various ways. While Viva is stronger in the casual and moderately priced market, De Rigo is more specialized in the premium luxury market as a licensee of numerous fashion brands owned by LVMH ? Céline, Fendi, Givenchy and Lowe ? plus Etro, Fila, Furla, La Perla, Mini and Onyx and its own Police, Sting and Lozza brands. Viva recently took over the important Tommy Hilfiger license, adding to a string of brands that include Guess?, Gant, Candie's, Ellen Tracy, Harley-Davidson, Marc Ecko and Catherine Deneuve. It also has a Viva line and owns the Magic-Clip system.

With annual sales of about $100 million in the USA, Viva is now one of the four major suppliers in the tough US market along with Safilo, Marchon and Luxottica, with a strong sales force. Aside from Safilo, which recently sported the best customer satisfaction ratings in the country; all the other major Italian eyewear producers have had a hard time cracking into the US market, which now represents only about 3 percent of De Rigo's turnover. Luxottica is getting in mainly as a retailer. Marcolin bought a wholesale company from a mass market specialist who recently formed a joint venture with Allison.

Viva says it's enjoying double-digit growth in the US market at the moment, thanks in part to Hilfiger. Ross, who has been in the business for 42 years, started off as a road salesman and previously worked for a small US firm that licensed Fabergé. He set up his own company 26 years ago, importing Jean Patou eyewear from 1982 on and licensing the Catherine Deneuve brand in 1989.

Unlike some other US firms, Viva has been strongly export-oriented because of the global reach of its brands. Starting in 1986, it set up subsidiaries in Canada, Japan and other countries, moving into Europe with its own operations in France and the UK in 1995. Viva has its own companies also in Italy and Hong Kong and joint ventures in Mexico, Brazil, Australia, Spain and Germany. The latest joint venture deal with Menrad in Germany, which began in January, covers also Austria, Switzerland and The Netherlands.

For its part, De Rigo, which has been centralizing its European operations in Italy lately, affecting its own operations in Germany and The Netherlands, reported on the eve of MIDO a 0.1 percent overall sales decline to €139.2 million for the 1st quarter of 2004, but pointed out that they would have risen by 6.1 percent excluding the results of the EID joint venture with Prada, which was phased out in mid-2003, with a 7.0 percent increase in terms of constant currencies.

De Rigo's wholesale and manufacturing revenues grew by 1.9 percent to €42.3 million in the period, with very strong results in Japan, Hong Kong, France, Greece, Germany and Spain. Without EID they would have grown by 4.4 percent in euros and by 5.2 percent in local currencies.

De Rigo's retail sales increased by 5.7 percent to €99.9 million, including a 6.7 percent increase in local currencies. GO's sales grew by 11.3 percent to €36.4 million, with an increase of 8.4 percent on a same-store basis. At D&A, sales were up 4.2 percent in pounds sterling, with a 5.1 percent gain on a comparable store basis, but translated into euro the sales increase to €63.5 million was limited to 2.8 percent. As of March 31, D&A operated a network of 232 corporate stores and 143 franchises. GO had 143 company-owned stores and 14 franchises.