Italy's antitrust agency, the AGCM, has opened an investigation into Luxottica's planned €140 million purchase of Barberini, the leading Italian producer of high-end mineral lenses for sun and optical glasses, which are typically used for medium to high quality sunglasses.
According to observers, its acquisition by Luxottica, which is combining its operations with those of Essilor, may constitute a risk for brands like Maui Jim and Etnia Barcelona, which rely on Barberini as a major supplier of the lenses used in their products.
The Italian regulator stated in fact in a document published on Oct. 5 on its website that there may be a risk of “foreclosure” in the market for mineral sun lenses, as Luxottica could restrict access to Barberini's lenses by the group's competitors, particularly if it decides at one point to use more of its production capacity. It is also afraid that the takeover could restrict access to the lens blanks produced by Barberini's German subsidiary, hindering the manufacturing of high-quality lenses by third parties.
The AGCM started to receive the first complaints from Luxottica's competitors last Aug. 1. In order to better evaluate whether the deal could constitute or reinforce a dominant position that could affect competition, the AGCM called for additional comments regarding the transaction on Aug. 20 and received them between Aug. 28 and Sept. 11. It decided to open a formal anti-trust investigation on Sept. 25, publishing a 12-page preliminary opinion on its website on Oct. 5 and encouraging the parties to make their positgion known within ten days and giving itself 45 days to conclude the probe.
The immediate consequence of the investigation will be a delay in the closing of the transaction, which Luxottica was hoping to complete in the third quarter of 2018.
In its public document, the AGCM unveiled that Barberini was owned at 54.5 percent by Illva Saronno and 45.5 percent by Nuova Ottica and that it posted sales of €83 million last year. It also pointed out that it owns an important production unit in Germany for the raw materials jt uses, and that it controls Triaplex, an important producer of polarizing firm in South Korea.
The AGCM noted that Luxottica currently produces in-house 90-100 percent of its non-corrective lenses and 70-75 percent of its mineral sun lenses, and thus only gets a small part of its needs from Barberini and other competitors. In 2017, 30-35 percent of Luxottica's sunglasses had mineral lenses. The lenses were mainly used for its Ray-Ban and Persol brands.
The AGCM stressed that some major competitors of Luxottica that sell sunglasses at above €100 per pair use mineral lenses for all or a significant part of their collections. It did not name them, but we understand that Maui Jim and Etnia Barcelona are among them. The regulator intends to gauge the extent to which the lenses are interchangeable, especially for clients who buy high-end sunglasses because they are particularly sensitive to the material used for the lens.
According to data released by the AGCM, EssilorLuxottica, the composite group resulting from the merger of Essilor and Luxottica and Barberini would control 65-70 percent of the Italian sunglass market. In 2017, the market was estimated to be worth €250-300 million at wholesale prices. Safilo ranked second with an estimated 10-15 percent market share, followed by Marcolin at five to ten percent. Maui Jim, De Rigo and Vision Service have estimated market shares of one to five percent each, followed by Allison and Silhouette with shares of less than one percent.
In the European Economic Area (EEA), EssilorLuxottica and Barberini are estimated to have a 40-45 percent market share in sunglasses, followed by Safilo at 10-15 percent and Marcolin at 5-10 percent. The wholesale value of the EEA sunglass market was estimated at between €2 billion and €2.5 billion in 2017.
According to the AGCM's document, Essilor alone has a share of less than 5 percent of the European market, indicating one reason why the European Commission didn't oppose the merger between Essilor and Luxottica. The Italian authority pointed out that the possible inclusion of Barberini Eyewear among the assets being acquired by Luxottica would not make much of a difference, as its sales are relatively small.
However, when narrowed down to plano mineral sun lenses, Barberini has a market share of 80-85 percent in the EEA, rising to 85-90 percent when adding Essilor. However, a “very significant” part of Barberini's production is sold to Luxottica, according to the AGCM. It is estimated that Luxottica represents 40-50 percent of Barberini's revenues.
Easy Power ranks second in the EEA market for mineral sun lenses with a five to ten percent market share, while the rest of the market is taken by Changyue, County Hill, Booming Optics, Yue Heng.
Worldwide, Barberini is see controlling between 40 and 45 percent of the value of mineral lenses supplied to third parties, followed by Changyue with a share of 15-20 percent and Easy Power with a share of 10 to 15 percent. Country Hill and GKB Opticals have shares of between 5 and 10 percent. Other players including LTL, an Italian subsidiary of Essilor, have share of less than 5 percent.
The plano mineral lens market in the EEA is estimated at €50-100 million a year. Worldwide, the market is valued at €100-200 million.
Barberini's share of the total EEA market for mineral and plastic plano sun lenses combined was estimated by the AGCM at 40-45 percent. When aggregated with EssilorLuxottica's sales to third parties, the share rises to 60-65 percent, according to the Italian market regulator.
According to the Italian anti-trust authority, Zeiss ranks second with a 10-15 percent market share and Dalloz third with a five to ten percent share. Worldwide, Barberini has a 10-15 percent market share, rising to 15-20 percent when combined with EssilorLuxottica.
According to data collected by the AGCM, mineral lenses represent about six percent of the production of plano lenses worldwide and 16 percent in Europe. The overall demand for plano mineral lenses is expected to remain constant or increase slightly over the coming years.
Luxottica argues that the evolution in demand demonstrates that mineral lenses can be replaced by plastic ones, even for iconic brands, while its competitors argue that substitutions are very limited for models and brands that have based their image on mineral lenses. This could apply to Maui Jim, which is one of Barberini's leading clients.
The AGCM acknowledged that, by adopting plastic lenses, some producers of sunglasses would have to “change their marketing strategy and market positioning.” It added that there are alternative suppliers of plano mineral lenses, but nearly all of Luxottica's competitors indicated that no manufacturer provides the same level of quality as Barberini. The regulator noted that the market for top-notch mineral lenses cannot be easily expanded because of the know-how and investments required.
Because of the quality of its lenses and its production capacity, Barberini is viewed as an “essential” supplier for any sunglass manufacturer wanting to sell products with high-quality lenses, according to the AGCM.
Vuarnet Sunglasses, which is one of Barberini's clients, told us that it is ready to increase its in-house production of mineral lenses depending on the evolution of the situation. It currently uses Barberini for about five percent of its needs.
The AGCM stressed that having to depend on a non-European supplier of plano lenses could cause logistics problems and lengthen delivery times for some manufacturers. The issue is exacerbated by the fact that some of Barberini's clients rely on the company to fit the lenses on their frames, further complicating transportation matters.
The AGCM disclosed that Luxottica had proposed a non-competition clause for Barberini's owners and to its long-time chief executive, Gianni Vetrini. The exact period of the clauses was not disclosed but the regulator vaguely indicated that it varied between one to five years. The regulator will be examining the non-competition pact.
To alleviate anti-trust concerns, one of the remedies that Luxottica has proposed is a plan to keep Barberini separate from the rest of the group for five years and the appointment of an independent administrator. For transparency, Barberini would keep separate accounts for costs and revenues related to supplies to Luxottica and for those related to supplies to other clients.
The group has also proposed that Barberini could renew existing client contracts at similar conditions without discrimination and conceal from Luxottica any information regarding its customers.
For its part, Barberini has committed itself to an increase of 50 percent in the volume of lenses sold to third parties, compared with 2017 levels, provided that the production ramp-up is planned sufficiently in advance.
Luxottica has offered to appoint an independent expert to monitor the respect of the pledges, updating the AGCM on the situation annually. It has argued that the acquisition would enable an optimization of production capacities at Barberini and boost efficiencies in its manufacture of mineral lenses.