In an attempt to break the stalemate, Valoptec, an association of current and former Essilor employees who hold more than 4 percent in the merged company, and seven investment funds aim to enlarge the board by appointing their own representatives at a shareholders' meeting scheduled for May 16. Essilux's board rejected the proposals, urging shareholders to “vote against all the proposed resolutions which, if approved, would result in a clear breach of the combination agreement and a potential disruption of the activities of the board.”
However, the board's vote was divided, with Del Vecchio and the other seven directors appointed by Delfin voting against the request, along with Sagnières. Four directors of the French side abstained, while the Valoptec representative and two representatives of Essilor's staff voted in favor of the proposals.
The board's recommendation is only indicative and the fate of the resolutions will be decided at the shareholders' meeting. If successful, the resolutions would inflate the board to 19 directors from 16 but may not drain the legal quagmire. The daily Il Sole 24 Ore cited Delfin's legal adviser, the law office of BonelliErede, as saying that the restrictions of the combination agreement would prevail, ensuring that Delfin retains its right to veto the board's decisions. The election of an additional representative of Valoptec would also violate the combination agreement, which is valid until 2021 and which imposes an equal representation of board members designated by the Italian and French sides, according to the daily.
An Essilux source confirmed that widening the board would not be decisive as the combination agreement states that any majority of the directors has to include at least one board member appointed by each of the Essilor and the Luxottica camps, effectively maintaining a right of veto of the two parties as long as they remain compact.
Valoptec is proposing Peter James Montagnon as board member. It described him as British national with “international expertise and a wealth of experience in governance and investment, resulting from his involvement in international organizations and his mandates as a director.”
The funds, which according to the Italian press are Baillie Gifford, Comgest, Edmond de Rothschild Asset Management, Fidelity International, Guardcap, Phitrust and Sycomore Asset Management, are pushing for two additional directors. Their candidates are a U.S. national, Wendy Evrard Lane, and a Dane, Jesper Brandgaard. All three candidates would be elected for a three-year mandate.
Phitrust, a French consultancy certified by stock market authorities, has rejected claims that the election of the funds' representatives would breach Essilux's bylaws, as they allow for up to 18 board directors, excluding two potential representatives of the staff members who are holding shares in the group.
Although it owns 32.05 percent of Essilux, Delfin's voting rights are currently limited at 31 percent under the combination agreement. At the first, and so far the only, shareholders' meeting held by Essilux, back in November, 77.1 percent of the capital was represented, meaning that Delfin had about 40 percent of voting rights at the gathering. Del Vecchio may also be able to rely on the fashion designer Giorgio Armani, who owns about 2 percent of Essilux.
Beating Delfin at the next shareholders' meeting will be difficult but not impossible. There is speculation that the participation rate at the May 16 meeting could be higher in the wake of intense buying of shares over the past weeks, with some brokers speculating that French interests are building up their stakes.
A British financial services group, Legal & General Investment Management (LGIM), has declared that it would vote for the three additional directors. In a statement, Sacha Sadan, head of corporate governance at LGIM, said his group wanted “boardroom problems to be solved as quickly as possible” to minimize the impact on integration, achieving synergies and on the search of the new CEO.
On a more sober note, Gianni Mion, an independent director named by Delfin to Essilux' board, said that the merger between Essilor and Luxottica is not at risk. “The merger won't break down, the bickering is meant to create the basis for a better relationship later,” he candidly told the news agency Reuters. Mion is a high-profile Italian manager who was for three decades at the helm of the Benetton family's holding company, Edizione Holding. He is or has been on the boards of many leading Italian companies.