Essilor and Luxottica completed their €48 billion merger agreement on Oct.1, but there are a few more steps that have been taken since and that will have to be made before the corporate structure of the new combined entity, EssilorLuxottica, is finalized.

The “combination” of the two industry giants comes 22 months after an initial agreement reached on Jan. 15, 2017, between the heads of Luxottica and Essilor, Leonardo del Vecchio and Hubert Sagnières. The two parties decided to finalize their agreement only after awaiting the blessing of the competition authorities of the U.S., China and other major countries.

The first step of the merger was officially finalized after Luxottica's major shareholder, Delfin, contributed its entire 62.42 percent stake in the company to Essilor on Oct.1. Based in Luxembourg, Delfin is the holding company of Luxottica's founder and executive chairman, Leonardo del Vecchio, and his family.

As a result, Essilor became the parent company of Luxottica. In return, Delfin received nearly 140 million newly issued ordinary shares in EssilorLuxottica through a capital increase without preferential subscription rights for existing shareholders. It became its largest shareholder with an initial stake of 38.3 percent.

The new company, EssilorLuxottica, began trading on the Euronext Paris exchange on Oct. 2. The next step will be the issuance of up to 81.3 million new shares and a private placement in the U.S. for an “exchange offer” intended to buy out the remaining shares in Luxottica.

The public tender to buy out the minority shares in Luxottica, and so increase EssilorLuxottica's 62.42 percent stake to 100 percent, started on Oct. 29 and is set to end on Nov. 28. If the transaction is successful, EssilorLuxottica will fully control both Essilor International and Luxottica, which will remain as separate unlisted companies.

Based on a carefully studied algorithm, EssilorLuxottica is offering 0.4613 newly issued shares for every Luxottica share. This will give Luxottica's minority shareholders an 18.47 percent stake in EssilorLuxottica if all shares are tendered. The designer Giorgio Armani, who owns 4.64 percent of Luxottica, has already agreed to tender his shares and will obtain a stake of about 2 percent in EssilorLuxottica.

The new shares are due to be listed on Euronext Paris on Dec. 4. After this step is fully completed, Delfin's stake will be reduced to 31.3 percent and the free float will be cut from 88.9 percent to 63.1 percent. However, Delfin's voting rights will be capped at 31 percent and existing double voting rights will be eliminated. The total number of fully diluted shares will grow to 445,828,004.

If necessary, the tender offer will be reopened on Dec. 5 to allow any remaining Luxottica shareholders to tender their shares, possibly followed by a squeeze-out process that would take place between Jan. 28 and March 4.

The combination of the world's largest lens maker with the largest frame manufacturer will generate an expected annual revenue in excess of €16 billion. It will employ nearly 150,000 people. On a pro forma basis, the combined company had consolidated revenues of €16.2 billion in 2017, generating operating income of about €1.6 billion and net earnings of about €1.2 billion.

So far, the group has said that the merger will result in annual synergies of between €420 million and €600 million at the operating level in the medium term and more in the long term. Sales synergies are estimated to generate additional revenues of between €200 million and €300 million a year. The group expects to generate annual cost savings of €150 million to €200 million from the supply chain and a further €70 million to €100 million in general and administrative costs.

EssilorLuxottica plans to hold a meeting with financial analysts and investors before the shareholders meeting that will approve its results for the 2018 financial year. During this so-called Capital Market Day, the group should give more details about its financial targets.

The first board of directors meeting of the new company is scheduled be held on Nov. 29. The group currently has Del Vecchio as executive chairman and Sagnières as deputy executive chairman. The two managers have equal powers. The group will also have two chief financial officers: Hilary Halper, who was the CFO at Essilor, and Stefano Grassi, who held a similar position at Luxottica.

The search of a new chief executive for the group will be launched by a nomination and compensation committee of EssilorLuxottica toward the end of January 2019. The recruitment process can last until the end of 2020. The management said that the group is “not up against the clock” and wants to take the time to find the right person for the job.

A public statement issued by Essilor said that EssilorLuxottica now has the means to grow the entire eyecare and eyewear industry thanks to its presence in all major segments, from lenses to frames, and in all sales channels, including physical and online distribution. Its products will correct, protect and frame the most precious sensory organ, the eye, which processes 80 percent of what people learn, the group said, while noting that one out of three people around the world are still lacking the vision care they need.