The European Commission has decided to open an in-depth antitrust investigation into the proposed merger between Essilor International and the Luxottica, due to concerns that it may reduce competition for opththalmic lenses. It will also investigate its effects on the market for eyeglasses. The review is expected to take up to 90 working days, which means that a final verdict may not come before next Feb. 12.

An investigation of this type typically involves more information gathering including internal documents, extensive economic data, more detailed questionnaires to market participants including competitors, clients and other parties along the supply chain. It may also involve site visits. Any efficiencies claimed by the companies and their positive effects on consumers must be verifiable. If the Commission's findings turn out to be negative, the parties will have a certain period of time to file their objections and request a hearing.

The European Competition Commissioner, Margarethe Vestager, stated in an official press release that European authorities had an obligation to carefully assess whether the proposed merger “would lead to higher prices or reduced choices for opticians and ultimately consumers,” also in view of the fact that most people wear glasses or need vision correction at some point.

She had previously been quoted as saying: “Even if it is a vertical integration, when you have market shares of this kind, in the high double digits, of course we have to be thorough in our analysis to make sure you don't foreclose.”

The Commission decided to go ahead with a so-called Phase II antitrust investigation after a preliminary review that ended last Tuesday. Essilor and Luxottica had been given a chance to offer certain concessions after the Commission had expressed concerns to them in a meeting about the merger earlier this month. It's standard practice in this kind of case for companies to offer some concessions in response to any concerns expressed by the regulatory authorities during the preliminary phase of an anti-trust review. However, the two companies apparently failed to offer any concessions by a Sept. 19 deadline.

The Commission said that its initial market investigation raised several issues relating in particular to the combination of Essilor's strong position in lenses and Luxottica's strong market position in eyewear. The Commission said it was concerned that “the merged entity may use Luxottica's powerful brands to convince opticians to buy Essilor lenses and exclude other lens suppliers from the markets, through practices such as bundling or tying. The Commission will investigate whether such conduct could lead to adverse effects on competition, such as limiting purchase choices or increasing prices.”

The Commission said it will also assess whether the merged entity would use Essilor's strength in ophthalmic lenses to exclude rival eyewear suppliers from the markets, the merger would remove important emerging competition from Luxottica in lenses and from Essilor in eyewear.

As we reported in the last issue of Eyewear Intelligence, before notifying the planned transaction to the EU, Essilor and Luxottica said they had been conducting an “open and constructive dialogue” with the European Commission.

Essilor and Luxottica said last Tuesday in a statement that they will closely cooperate with the European Commission to fully demonstrate the rationale of the proposed combination and the benefits that it will bring to costumers, consumers and all the eyewear industry players.”

The two companies added that they still have the objective of closing the merger by the end of this year. They noted that the transaction has already been unconditionally cleared so far by antitutrust authorities in Russia, India, Colombia, Japan, Morocco, New Zealand, South Africa and South Korea.However, due to the vertical integration of Luxottica and Essilor in the U.S. - offline and online - the proposed transaction may get a rougher treatment from the U.S. government. Anti-trust authorities in the U.S., Canada and Brazil have already filed “secondary requests” for additional information and documents before giving their blessing to the proposed €46 billion merger. A probe by the Chinese government is apparently still in progress.Other aspects of the concentration process going on in the industry are facing challenges. The Competition and Market Authority of the U.K., which was set to give its verdict yesterday on Vision Express' plan to acquire Tesco Opticians. Said it had identified three stores where the transaction could lead to higher prices. It wasn't clear at the time of going to press whether this may lead to a Phase II review of the takeover proposal, which would form a group with more than 200 points of sale in the U.K..