The price of $29.30 being paid by Luxottica in the all-cash transaction announced yesterday values the Oakley group at $2.1 billion, representing a premium of 24 percent above its average stock market price of the last three months, or 30 percent over six months. It's a long shot from a share value of around $10 a share three years ago, before Oakley's founder, Jim Jannard, decided to step back and pass the helm to Scott Olivet. It's probably one reason why he has agreed to sell.

Oakley's shareholders and anti-trust authorities must still approve the transaction, but Luxottica officials expect no problems. Described in Oakley's announcement to the press as the company's chairman and ?chief mad scientist,? Jannard, who is now 57 years old and the holder of 64.1 percent of Oakley's equity, said he was encouraged by the fact that Luxottica's management had come to understand ?the unique, rogue nature of Oakley in the eyewear industry and is committed to preserving it.? Given the opportunities that may stem from the acquisition, Jannard, who has agreed to a 5-year non-competition clause, said he was planning to use some of the money made through the deal to make an investment in Luxottica after the transaction closes, probably during the 2nd half of this year.

The price being paid for Oakley may be regarded as high by certain standards, but investors have considered it as fair, sending Luxottica's stock market price up to €28 after the announcement. Oakley is still expected to achieve better profits and sales of about €930 million this year. The purchase price agreed with Jannard and the rest of Oakley's board of directors, after several months of discussion, is equal to 11.4 times Oakley's projected 2008 earnings before amortization and depreciation (EBITDA) excluding expected synergies, and 7.8 times its EBITDA including synergies. Oakley's and Luxottica's share price began to increase sharply a few days ago after the first rumors came out about a possible impending takeover.

With Oakley contributing its expertise in performance sports, sunlens technology and active lifestyle design, the new group that will stem from the acquisition will have an estimated EBITDA of €1.2 million on projected sales of €5.7 billion on a pro-forma basis this year. It will have a very strong portfolio of premium licensed and company-owned brands and a network of more than 6,000 stores worldwide. Oakley's recent acquisition of the 139-store Bright Eyes chain pushed its own store count beyond 400 units, including some doors in Australia.

Luxottica and Oakley have been following parallel paths, with distinct business models that are largely complementary. Leonardo Del Vecchio founded Luxottica in 1961 and appointed three years ago as chief executive an experienced manager, Andrea Guerra, who is now 41 years ago. Jannard founded Oakley in 1975 and retired two years ago, leaving the company under the management of Olivet, now 45 years old and trained to work in a multi-brand environment within another conglomerate, Nike, which - like Luxottica ? is the leader in its field.

In a conference call yesterday, Guerra stressed that there will be no integration of Oakley, as was the case with Ray-Ban after its takeover by Luxottica eight years ago, but rather a combination of two different organizations that will generate new business ideas and add ?diversity, power and energy? to Luxottica's overall business. Olivet will report to Guerra, running Oakley as an independent entity and handling two of Luxottica's sunglass brands ? Arnette and Revo ? that will be part of a new sports eyewear segment of the enlarged group. Unlike Safilo, which bought Carrera and Smith Sports Optics, Luxottica has done little in this domain so far ? probably waiting for the opportunity to take over the #1 company in the sports eyewear sector.

Some of Luxottica's licensed brands will also be able to benefit from Oakley's superiority in the sports segment and from its 600-odd patents for some of their more youth-oriented lines, such as the successful Prada Luna Rossa collection. Conversely, Luxottica's strong presence in the fashion segment will be helpful for the development of Oakley's new women's line and of Oliver Peoples, the luxury eyewear company recently bought by the American sports eyewear firm, plus its Paul Smith license.

The acquisition of Oakley will generate major synergies in back-office functions while triggering new ideas for a finer segmentation of the consumer targets that the Luxottica group will be able to reach through its multiple wholesale and retail brands. In particular, there will be new opportunities to reposition Oakley's Sunglass Icon chain against Luxottica's Sunglass Hut, and Oakley's Optical Shop of Aspen against Lenscrafters.

In his presentation, Guerra stopped short of promising a presence for Oakley in two of Luxottica's chains, Lenscrafters and Pearle, where the brand is absent for the moment, but he indicated that there will be more place for its prescription eyewear and its new women's models in Sunglass Hut stores. A closer collaboration will help Oakley to place the right styles in the chain's stores.

On the other hand, Oakley will gain a much stronger distribution platform to help broaden its presence beyond North America and three-five European markets where it performs well, including France and Germany. As an example, Luxottica's new retail presence in China will help Oakley to capitalize more on its presence at next year's Olympic Games in Beijing.

Luxottica is predicting annual savings of €100 million from the combination of the two companies, 15 percent of which should come from better sourcing in the Far East. About 30 percent of the frames sold by Oakley are made in China. The acquisition is expected to improve the group's overall EBITDA margin by about 4 percentage points, not including trademark amortization over a period of about 25 years.

While the iconic Oakley brand is less profitable than Ray-Ban, Guerra feels that it can become more profitable in the longer term because of its higher market positioning and the other products sold under its brand name. Oakley's apparel and footwear lines, which have been streamlined recently, contribute lower margins than its eyewear, but Olivet says that will improve. He says they will not be licensed out.

The acquisition will push Luxottica's net debt up to €2.7-2.8 billion, and some 60 percent of it will be in dollars. That would be equal to a ratio of 2.3 times EBITDA, which is not excessive, but debt levels should then decline to around €2 billion within one year.

Luxottica has been after Oakley for a long time, at least ever since it bought Sunglass Hut at the beginning of 2001, after several attempts. That was two years after taking over Ray-Ban from Bausch & Lomb. Oakley represented at that time about 30 percent of Sunglass Hut's sales, while Sunglass Hut was Oakley's largest customer.

Soon after its acquisition of Sunglass Hut, Luxottica decided to scale back considerably the chain's purchases of Oakley products, putting instead many of its own brands and changing its focus from the active male customer over to a more fashion-conscious consumer of either sex. At the end of 2001 the two parties struck a first 3-year contract where Oakley granted a rebate if its brand represented at least 15 percent of Sunglass Hut's sales, but Oakley began at the same time its diversification into retailing, acquiring the Iacon chain of sunglass stores in the USA.

Oakley subsequently signed new contracts with Sunglass Hut, one through 2005 and another that would come up for renewal at the end of 2008, but its sales to Luxottica's retail network have gone up and down. They are now reported at only around 6 percent of the sports brand's total turnover, following the numerous acquisitions orchestrated by Olivet.

Sources say that Nike was also interested in acquiring Oakley before its recent renewal of its big and successful licensing agreement with Marchon. At that time Olivet was still vice president of business development at Nike, overseeing Cole Haan, Converse and all the other brands owned by the world's biggest sports conglomerate. Oakley would have benefited from Nike's expertise with footwear and clothing, but no deal was made, reportedly because of the high price demanded by Jannard. Eventually Olivet agreed to leave Nike to run Oakley, steering the company's latest reorganization. Olivet appointed a new manager for Oakley Europe, Giuseppe Servidori, who worked previously for Luxottica.

In the latest transaction, Luxottica received investment advice from Rothschild and legal advice from Winston & Strawn. Oakley's advisers were Goldman Sachs on the investment front and Skadden, Arps, Slate, Meagher & Flom on the legal side.