MILAN — Leonardo Del Vecchio has officially thrown down the gauntlet.
The founder of Luxottica has, through his family holding Delfin, deposited a request for arbitration at the International Chamber of Commerce “to ascertain violations” to the Essilor and Luxottica merger inked in 2017.
Delfin attributes the violations to EssilorLuxottica and to Hubert Sagnières, chairman and chief executive officer of Essilor until the merger. He is now executive vice chairman of the combined entity.
Delfin stated that it demands to “obtain an injunction to respect the agreement until its deadline.”
An alleged power struggle is pitting Del Vecchio, who founded Luxottica in 1961 and holds 31 percent of voting rights in EssilorLuxottica, of which he is executive chairman, against Sagnières. Del Vecchio is also president of Delfin.
In the arbitration request note, Delfin said it “will continue to act in the interest of the company, its employees and all its stakeholders” as it demands “rigorous respect of the agreements and in particular of the governance rules to be “conjoint and equal.”
Delfin once again denied any effort to “take control” of EssilorLuxottica, whether “rampant” — a dig at Sagnières, who last week said that, “despite [Del Vecchio’s] denials, a certain number of his actions reflect a de facto attempt to take control of the new group, without any premium offered to shareholders” — or de facto.
“The accusations and other speculation circulated” about such a takeover “are groundless and only induce the market and the public in error,” continued Delfin.
In a letter of response to Essilor management on Thursday Sagnières reacted to Del Vecchio’s decision by reiterating that his claims are “unfounded and reflect an attempt by Delfin to destabilize Essilor. We staffed Essilor International (CGO) SA (now EssilorLuxottica) further to the hive-down in November 2017 of all activities of Essilor International (CGO) SA to Essilor International SAS. This was a requirement of the Combination Agreement to ensure that an appropriate management team required for a holding company of a listed group would be immediately in place. These executives benefit from a provision that allows them to be transferred back to Essilor International SAS if their employment agreements at EssilorLuxottica are terminated as a result of the hiring of joint executives. To be clear, Luxottica representatives knew of this hiring at the time of the closing of the transaction in October 2018.”
Sagnières accused Delfin of making “inaccurate statements” when it suggested that special arrangements had been made for these individuals.
“Despite denials by Delfin and its representatives, it has become clear that Mr. Del Vecchio wants to take control of EssilorLuxottica without paying a premium to the shareholders. He also wants to appoint Mr. Francesco Milleri as the CEO of EssilorLuxottica as stated several times. In this position, Mr. Milleri would have authority to impose his management style and views and, as such, he would breach the agreement that we have collectively agreed to and adopted,” Sagnières’ letter read.
The executive concluded by underscoring his commitment. “I will continue to ensure we accelerate operational efficiencies rather than becoming derailed by governance matters that often only reflect personal ambitions. The search for a future CEO of EssilorLuxottica is a priority for the success of the Group, and I give my full support to this effort. We must dedicate our energy to integrating the two businesses, under strong leadership, and implementing the synergies that we have promised to the market. These controversies do not prevent us from continuing to work to implement the different actions necessary for the full integration of the two groups. This is being carried out with the support of McKinsey alongside over 20 joint working groups involving hundreds of employees around the world.”
Last week, Sagnières responded to a statement issued by Delfin that accused Essilor’s executives of violating their merger deal. He also reacted to an interview given to Le Figaro newspaper that contained similar allegations.
“Delfin and its representatives published on Wednesday serious and false accusations regarding the group’s governance and management, accusations to which the board of directors had already responded, especially regarding the respect of the initial agreements,” Sagnières said last week.
Under their merger agreement of January 2017, the two executives agreed to co-manage until May 2021, with a new ceo for the group to be recruited, either internally or externally, by the end of 2020.
Sagnières claimed that as of Nov. 5, 2018 — before the first AGM of the combined group — Del Vecchio wished to “unilaterally delegate his role as ceo of EssilorLuxottica to Mr. Francesco Milleri,” referring to Del Vecchio’s longtime collaborator. “He has since then indicated that he would like to change the balance of powers established in the combination agreements,” he added.
He was responding to a note issued by Delfin last week that denounced “violations of the agreements and behavior contrary to the spirit of collaboration” that were the foundations of the merger between Essilor and Luxottica.
Delfin has stated that, following an EssilorLuxottica meeting held on March 18, its board had not released any communication in relation to the governance of the eyewear giant.
Del Vecchio is “convinced of the enormous industrial value of the integration project, so much so that he has accepted a limitation to 31 percent of his voting rights and, for ‘an initial period’ that ends in the spring of 2021, also of equal power and representation on the board for Delfin and Essilor.”
The purpose of this “initial period” is to ensure “a gradual process of integration of cultures, values and organizations” of the two companies. At the end of this period, EssilorLuxottica will be ruled by the “normal governance mechanisms of a publicly listed company.”
Del Vecchio has accused Sagnières of naming four key managers, all from Essilor, to manage the group in January 2018 without consulting his counterpart or the advisory board.
EssilorLuxottica was formed through the 46-billion-euro merger of Italian eyewear giant Luxottica, the owner of Ray-Ban and the producer of eyewear under license for names including the Giorgio Armani Group, Bulgari, Burberry, Chanel, Coach, Prada and Versace, and France’s Essilor, billed as the world leader in ophthalmic optics and a key player in visual health.
The agreement was originally signed in January 2017, although the actual merger was delayed by around a year by investigations from competition authorities, and was finalized on Oct. 1, 2018.
The share’s value has fallen more than 20 percent since the merger, with analysts and investors concerned that the power struggle will hinder integration and synergy measures and the newly formed group’s long-term strategic focus.