An alleged power struggle is pitting Leonardo Del Vecchio, who founded Luxottica in 1961 and holds 31 percent of voting rights in the new holding company, EssilorLuxottica, of which he is executive chairman, against Hubert Sagnières, chairman and chief executive officer of Essilor until the merger and now executive vice chairman of the combined entity.
Sagnières has responded to a statement issued Wednesday evening by Del Vecchio’s family holding company, Delfin, accusing Essilor’s executives of violating their merger deal, and an interview with similar allegations given to Le Figaro newspaper, published in Thursday’s edition.
“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 in a statement.
“This approach, which is contrary to the company’s social interest, is detrimental to the company and to all its shareholders. It creates a shock for its employees and its management, while many joint working groups are demonstrating on [a] daily basis the considerable potential of the two companies’ combination,” he added.
Under their merger agreement of January 2017, the two executives agreed to comanage 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.
“Despite his 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,” Sagnières concluded.
He was responding to a note issued by Delfin on Wednesday 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.
The Luxembourg-based firm 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.
The note went on to say that Delfin sees the behavior of “some Essilor representatives” as deserving “immediate action” because “contrary to the duty of loyal cooperation and good faith” required by the 2017 merger agreement and “essential for the correct functioning of the company’s governance.” This behavior is deemed an “obvious violation” of the agreements set for the merger.
Del Vecchio, who is president of Delfin, has invested in EssilorLuxottica the “result of an entire working life,” continued the statement.
The entrepreneur, who founded Luxottica and turned it into an international eyewear behemoth, 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.”
Delfin denied Essilor’s accusations it was “rampantly taking control” saying this was “out of the question.” On the contrary, Essilor’s representatives “have deliberately prevented Delfin from claiming its equal quota of authority and powers” agreed upon with the merger, the note stated.
“Delfin will continue to respect and demand full respect from the representatives of Essilor in line with the rules” set when Essilor and Luxottica shareholders agreed on the merger.
“Delfin reserves the right to take all actions that it believes will be necessary or appropriate to protect its interest, that of EssilorLuxottica and all its shareholders,” it said.
Del Vecchio’s interview with Le Figaro went further. He told the French newspaper: “Unfortunately, it was complicated from the outset. Hubert Sagnières only accepts his own ideas; he refuses anything that anyone else suggests. We have been forced to accept everything he has done. As early as the first general assembly of the new group, on Nov. 29, he acted as if Essilor had bought Luxottica. He broke the pact signed in 2017.”
Del Vecchio 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.
A meeting of the advisory board on Monday reportedly failed to find a solution to the stalemate. Its next shareholder meeting is set for May 16.
“At the meeting on Monday, I told him he had broken the agreement. We cannot accept that. I made suggestions. He refused them all,” Del Vecchio said in the interview.
“Delfin is considering the best ways to guarantee that the contract is respected,” he added. “We are willing to find a solution, but we need a dialogue with the other side. Otherwise, there will be no choice but to await the end of the contract.”
EssilorLuxottica was formed through the 46-billion-euro merger of Italian eyewear giant Luxottica, 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.
EssilorLuxottica’s shares were trading down more than 6 percent mid-afternoon in Paris.
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.
As reported, for full-year 2018, EssilorLuxottica’s net profit on a pro forma, adjusted basis — which consolidates the two companies’ results starting from Jan. 1, 2018, and adjusts them from one-off or otherwise unusual expenses — declined 1.7 percent to 1.87 billion euros.
Operating profit was down 4.8 percent to 2.57 billion euros, while sales eased 1.2 percent to 16.16 billion euros. At constant exchange rates, sales were up 3.2 percent, with both Essilor and Luxottica contributing to the gain.