Ray-Ban Billionaire Starts Another Staring Contest
(Bloomberg Opinion) -- The soap opera that is EssilorLuxottica SA has a fresh M&A plotline.
The Ray-Ban maker said on Saturday that it has begun legal proceedings against optical retailer GrandVision NV, to obtain information on how the company it agreed to acquire a year ago for 7.3 billion euros ($8.3 billion) has managed its business during the Covid-19 crisis.
EssilorLuxottica said that despite repeated requests, the target has failed to provide this. GrandVision said it strongly disagreed with the allegations and it remains committed to the deal. Even so, its shares fell 5% on Monday.
This drama brings to mind earlier tussles between Italy's Luxottica and France's Essilor, which merged in 2018. Last year, Luxottica’s billionaire founder Leonardo Del Vecchio had a bitter falling out with Essilor’s boss Hubert Sagnieres. At one point Del Vecchio threatened arbitration over alleged breaches of the companies’ merger agreement. The two have since reached a truce.
It’s not clear if the current spat with GrandVision will come to a peaceable end.
The requests for information could simply be to help conversations with regulators, as the European Union is investigating the GrandVision deal for potential antitrust violations. The current deadline for the probe to wrap up is August 27. If competition authorities do require remedies, such as selling off stores, having the most up-to-date picture of the business is essential. But surely the two groups would want to work together to minimize the regulatory hurdles.
EssilorLuxottica’s more aggressive stance might instead be an attempt to renegotiate the deal, either because regulators want large numbers of stores offloaded, jeopardizing its economics, or because in the wake of Covid-19 the price tag now looks too steep.
Indeed, demanding information on how GrandVision has managed the business, and alleging it breached an agreement to keep EssilorLuxottica up to date, has echoes of the argument Sycamore Partners used to walk back its acquisition of Victoria’s Secret from L Brands Inc. The private equity group argued that actions taken to protect the lingerie retailer during the pandemic actually damaged its value.
EssilorLuxottica acquiring GrandVision still has strategic logic, in that it gives the group an optical retail presence in Europe. But the acquisition always looked like a bold move, coming so soon after the company’s original merger and the rapprochement between Del Vecchio and Sagnieres.
Now the pandemic has made integrating GrandVision even harder. It conducts eye tests in its stores, bringing people into close contact. New, and likely more expensive, ways of working will be needed. This comes as competition intensifies and consumers are pulling in their purse strings, perhaps explaining why Walgreens Boots Alliance Inc. recently said it would close 48 optician practices in the U.K.
But by being too heavy-handed, EssilorLuxottica risks souring the relationship with GrandVision and puts the deal in peril. It is understandable that it doesn’t want to overpay, but it likely doesn’t want to jeopardize any strategic benefits it would gain either.
The case of Victoria’s Secret should serve as a cautionary one. In the end, the agreement was terminated, costing Sycamore the opportunity to reinvigorate the famous name. The widespread expectation was that the deal would be renegotiated at a lower price.
So EssilorLuxottica should tread carefully — if it wants to prevent what happened in bras from taking place in bifocals.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.
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