Luxottica has an official ?no comment? on widespread rumors that it is now offering to take over Cole National, one of the largest optical retail chains in North America, with 2,181 locations in the vision business, and holder of a 21 percent interest in Pearle Europe, which is becoming the largest player in the European optical retail market. The rumor was so strong last week that Luxottica's share price jumped immediately by 4.9 percent to €13.40 when Cole National announced that it was the target of an unsolicited bid from an unnamed investor at $19.65 a share, about 60 percent more than its recent stock market price. Last afternoon, Cole National's stock market price was still high at $21.86 a share, indicating that the market is expecting a higher bid or a counter-bid. The offered price would value Cole at $320.9 million, not including assumption of Cole National's large debt of about $280 million. Luxottica's own share price gained further strength in the last few days, opening this morning at €13.82.

Just as it was about to complete its takeover of OPSM Group, the largest optical retail chain in the Asia-Pacific region, Luxottica's management indicated last summer that its next acquisition may well be in the US retail market. Its previous takeover of LensCrafters and Sunglass Hut International have allowed the Italian group to reach market shares of about 11 percent in the overall US optical retail market and 35 percent of the higher-end sunglass market, although it was recently still trailing Marchon and Safilo at the wholesale level. Cole National, whose vision business comprises 2,181 locations in the USA, Canada, Puerto Rico and the Virgin Islands, was a rather logical choice, considering that its equity is widely dispersed and that its profitability and its share price has been depressed lately because of a series of legal contingencies and contractual obligations to Jeffrey Cole, the group's long-time CEO, who retired last June to be replaced by Larry Pollock.

Due to a confidentiality agreement, Cole says it cannot reveal the identity of the mysterious bidder but says it's not HAL, its own largest single shareholder with a stake of about 20 percent and controlling shareholder of Pearle Europe.

Last month, HAL raised its stake in Pearle Europe from about 68 to about 79 percent by acquiring shares held by the latter's management. Cole National and HAL had previously offer to buy that jointly for about $65 million, but in the end HAL agreed to pay more and Cole decided to remain with its own 21 percent stake in Pearle Europe. Anyhow, following the unsolicited bid for Cole National, Mel Groot, the current CEO of Pearle Europe who is about to move into HAL's board of directors, has resigned as s director of Cole National, citing a conflict of interest. Groot would not comment on his motivations.

As is often the case with such takeover offers, Cole National's 8-member board has appointed a special committee of 5 independent directors to evaluate strategic alternatives, including a possible merger or sale of the company, a corporate restructuring or other alternatives. According to observers, one alternative could be a merger with HAL in view of its growing interests in the European optical retail sector. Another could be a management buyout, combined with the sale of its stake in Pearle Europe and of Things Remembered, a chain of 754 US stores that specialized in customized gifts.

For the 2nd quarter ended Aug. 2, Cole National has reported a net loss of $5,487,000, compared with $5,957,000 in the year-ago period, partly due to a contractual one-time payment of $11.9 million to Jeffrey Cole. Total revenues grew by 5.2 percent to $307.7 million and the overall gross margin fell to 62.7 percent due to increased promotional action and greater reliance on externally funded programs.



Cole Vision, which groups all the optical retail chains and concessions of Cole National, improved its operating profit to $3,192,000 on sales of $228.8 million, boasting an aggregate 7 percent sales increase on a same-store basis in the quarter, thanks in part to better merchandising and the institution of ?focus? stores that are testing new ideas and use well-trained personnel. Special fixures have been installed in the concessions to highlight premium products such as rimless and flexible metal frames. Same-store increases were 18.9 percent at Target Optical, 15.6 percent at BJ's Optical, 7.8 percent at Sears Optical and 2.3 percent at Pearle Vision, with corporate Pearle stores showing a 4.1 percent gain.