The US Federal Trade Commission has given an unconditional approval of Cole National's merger into Luxottica Group's bulging North American retail division, meaning that the Italian group will not have to divest any of the LensCrafters or Sunglass Hut stores that it operates in the USA.

The deal is now expected to close on Oct. 4 based on the price of $27.72 per share approved by Cole's shareholders last July 22, with all of them tendering their shares and receiving interest based on an annualized rate of 4 percent from that date to the closing of the transaction. Luxottica has already secured new credit lines to help finance the takeover, involving a cash payment of more than $500 million including interest and assumption of $219 million in Cole's debt.

The acquisition raises to about 5,400 the number of stores operated by Luxottica in the USA and nearly 6,300 worldwide. That includes 2,179 optical stores operated by Cole, its 722-door Things Remembered chain of gift shops, 877 LensCrafters stores in North America, OPSM's 595 locations in Australasia and more than 1,900 Sunglass Hut stores worldwide. It also gives Luxottica via Cole a 21 percent stake in Pearle Europe, which operates more than 1,500 stores in this part of the world.

Luxottica's executives decline for the moment to comment on the future of Cole's assets and the details of its integration with the company's present retail structure. It's still likely that Luxottica will sell its 21 percent stake in Pearle Europe. In fact, Cole's articles of association call for Cole to offer it for sale to its own present shareholders, including HAL, in case of a change of ownership. HAL, which controls Pearle Europe, is expected to make an offer for its remaining shares, and if it cannot agree with Luxottica on the price, an independent auditor will set it.

It looks almost certain that Cole's Managed Vision unit will be merged with Luxottica's EyeMed Vision Care operation in the USA. On the other hand it's not sure whether Luxottica will want to keep Things Remembered, considering that the chain's profitability has been improving lately.

For the 2nd quarter ended last July 31, Cole National reported a sales increase of 1.9 percent on a same-store basis for Things Remembered and a 1.3 percent decrease for its vision segment. Gross margins improved in the gift division thanks to higher levels of personalization, which also led to higher revenues per transaction. The vision segment's gross margin increased, too, rising to 60.0 percent from the 59.4 percent level of the year-ago period, thanks to higher margins in contact lenses, lower levels of inventory shrink and obsolescence, higher manufacturing productivity and better revenues and profits in managed vision.

In the Cole Vision division, same-store sales fell by 4.0 percent at Sears Optical, partly because a contact lens offer was not repeated this year, but they rose by 4.7 percent at Target Optical and by 11.0 percent at BJ's Optical. In both cases Cole reaped some benefits from the presentation of more fashionable merchandise, following in some ways the successful strategies already pursued by Luxottica in its own US stores. Instead, same-store sales decreased by 2.0 percent at Cole's company-owned Pearle Vision stores and by 1.4 percent at franchised stores, although average transactions rose because of increased offerings of premium products and lens treatments.

Overall, Cole National's revenues rose by 1.7 percent to $312.8 million in the quarter. The group's gross margin increased to 62.9 percent from 62.5 percent a year ago, while operating expenses declined as a percentage of sales from 62.8 to 58.7 percent. Operating income improved in both divisions. However, lower interest income, ?unusual items? and higher taxes diluted this gains, ending up with a net profit of $1.0 million compared with a net loss of $5.5 million in the year-ago period. Extraordinary charges declined from $11.4 million to $5.5 million and they included this time expenses related to the company's evaluation of strategic alternatives to Luxottica's bid and compliance costs associated with the FTC's requests for information.

Meanwhile, Tom Coleman, who had moved from LensCrafters to OPSM to run the Australian-based retail group after its acquisition one year ago, is moving back to the USA now to work with the Luxottica Retail Division. The company says Coleman will remain as CEI and managing director of OPSM, returning to Australia from time to time to supervise group strategy, planning and marketing, and to attend board meetings, but he will try to enhance the synergies between the group's North American and Australasian operations from his new venue. There is unconfirmed speculation that Coleman will have a strong role in the integration of Cole National with the rest of Luxottica's retail activities. The group's day-to-day functions in Australia will be handled by Chris Beer, the former group general manager who was recently appointed as OPSM's chief operating officer, and by Peter McClelland, who has been promoted as chief financial and administration officer.

On the other hand, nobody we know has a clue as to what cash-rich Luxottica may want to buy next, without interfering with its current portfolio of eyewear brands and retail operations, but most observers feel that the group is probably going to enter now a phase of consolidation under its new management. Del Vecchio's shopping began in May 1995 with the acquisition of LensCrafters, the largest optical retail chain in the USA, as part of a larger group that included at the time some divested shoe operations. It followed in June 1999 with the takeover of Bausch & Lomb's sunglass division. It then bought Sunglass Hut International in March 2001 and OPSM in September 2003.