The anti-trust authorities of the European Union and the U.S. gave their unconditional approval to the proposed combination of Essilor and Luxottica on the same day, March 1, leaving only the jurisdictions of Brazil and China to issue their verdict. The news led to an immediate increase in the share value of both companies of more than 5 percent.
Brazil's anti-trust authority, Cade, had endorsed the merger a few days earlier, but giving interested parties time until March 12 to appeal its decision. We could not determine its final stance by the time of going to press. Cade had expressed concern about a possible “closure of the market” in the future through Essilor's acquisition of more laboratories or anti-competitive sales strategies.
In approving the merger, the European Commission noted, among other things, that the two companies specialize in complementary optical products and that Luxottica has an estimated share of less than 20 percent of the European market for prescription frames.
It didn't give a similar estimate for the share of the sunglass market held by the two companies, but argued that this category represents only a small portion of the average optician's revenues and that most sunglasses are sold without visual correction. The Commission concluded that Luxottica's strongest brands of frames and sunglasses, including Ray-Ban, “are generally not essential products for opticians.”
The Commission pointed out that “a sizeable number” of European opticians don't sell Luxottica products. One of our subscribers challenged this statement. Responding to our inquiries, an official of the Commission indicated that it plans to put out a detailed version of its decision on its website by the end of May.
It will provide, at that point, some information about market shares and the percentage of the opticians who are selling Luxottica products, with a variation of 5 to 10 percent from the actual figures in order to preserve a certain degree of confidentiality.
To reach its conclusions, the Commission used feedback received from a sample of 4,000 opticians throughout Europe in order to assess whether the merged company might use Luxottica's powerful brands to make opticians buy Essilor lenses, excluding other suppliers from the market through practices such as bundling or tying.
Even if it would follow such practices, the Commission said, the merged company “would be unlikely to marginalise competing suppliers of lenses and harm effective competition.” The Commission also concluded that the merged company would not be able to exclude rival eyewear suppliers from the market, as Essilor has “insufficient market power and incentives” to do that.
In view of the global scope of the two companies' activities, the Commission cooperated closely in its investigation with the anti-trust authorities of other countries, in particular the U.S. Federal Trade Commission (FTC), which issued a more succinct statement about the proposed merger:
“FTC staff extensively investigated every plausible theory and used aggressive assumptions to assess the likelihood of competitive harm. The investigation exhaustively examined information provided by a wide and deep swathe of market participants, as well as the parties' own documents and data. Assessing the likely competitive effects of a proposed transaction is a fact-specific exercise that takes into account the current market dynamics, which may be different in the future. Here, however, the evidence did not support a conclusion that Essilor's proposed acquisition of Luxottica may be substantially to lessen competition in violation of Section 7 of the Clayton Act.”
Essilor and Luxottica are now expecting the deal to be completed in the first half of this year. China is the only other major jurisdiction that still has to rule on the proposed merger, yet observers feel that it will likely follow the position already taken by the FTC and the European Commission. The jurisdictions of 13 other countries had already approved the merger before.
The anti-trust authorities of the European Commission and the U.S. announced their favorable decision just after Essilor's management commented on the company's 2017 financial results in a conference call with analysts. Hubert Sagnières, chairman and chief executive of the group, said that joint operational teams from both companies have already started working on their future integration in the areas of communication, finance, human resources, compliance, technology, and also a lot on research.
Laurent Vacherot, president and chief operating officer of Essilor, pointed out that the group had slowed down its program of acquisitions last year, pending clearance of the proposed merger by anti-trust authorities. He said Essilor would start to contact again potential takeover candidates after getting clearance in their respective countries. Discussions have already restarted in some countries.
Sagnières stated that its merger with Luxottica will help Essilor to reach a goal, voiced at the group's general assembly last April, to eradicate poor vision from the world by 2050. Essilor is already doing a lot in this direction through special market development programs in countries such as China, India, Indonesia and Vietnam. With its expertise in retailing, Luxottica would help set up more optical stores around the world, Sagnières indicated, giving greater access to eye care to the 4.5 billion people around the world who still need to get their vision corrected.