LUXOTTICA TO BUY SUNGLASS HUT
Byline: Wendy Hessen / Courtney Colavita / Contributions from Arnold J. Karr
NEW YORK — In what could have a dramatic effect on the eyewear business, Luxottica Group SpA announced Thursday that it intends to purchase the industry’s dominant U.S. specialty retailer, Sunglass Hut.
In a joint statement, the two firms said an acquisition subsidiary of Luxottica will tender an offer, likely within the next two weeks, to purchase all outstanding shares of Sunglass Hut International common stock for $11.50 per share in cash for a total of roughly $462 million. The offer, plus the assumption of Sunglass Hut debt, would result in a deal worth about $653 million.
Rothschild Inc. and Morgan Stanley Dean Witter were the financial advisors for Agordo, Italy-based Luxottica and Coral Gables, Fla.-based Sunglass Hut, respectively. Sunglass Hut operates 1,962 retail units around the world, 1,304 of which are solely sunglass stores and 430 which offer both sunglasses and fashion watches from its Watch Station division. An additional 228 stores are purely watch stores.
Luxottica, the largest maker of mid-and premium-priced eyewear, manufactures more than 2,650 styles of eyewear in six facilities in Italy that are sold worldwide. The company acquired the LensCrafters retail chain in 1995 and the Ray-Ban brand of eyewear through its 1999 purchase of Bausch & Lomb’s sunglass business.
Luxottica chairman Claudio Del Vecchio did not respond to requests to discuss the deal. In a statement, Del Vecchio described the acquisition as “the next step in Luxottica’s strategy to penetrate the retail market in North America,” referring to its LensCrafters purchase. “We are bringing under the same umbrella over 2,500 stores by combining the leading sunglass retail chain with the largest optical retail chain in North America. At the same time, this operation is the natural outcome of our strategy to strengthen our presence in the sun segment, which we started two years ago with the Ray-Ban acquisition. Sunglass Hut is the only chain that has the market position needed to set new trends, adding value to existing brands and supporting the launch of new ones.”
Not surprisingly, Sunglass Hut chairman and chief executive officer James Hauslein was enthusiastic about the deal, saying the merger “represents a partnership with a tremendous global leader. This is a vertical integration opportunity; we share a common vision with Luxottica.”
Hauslein said the deal would help Sunglass Hut customers by providing the chain with the ability to “leverage some LensCrafters and Luxottica capabilities by possibly expanding its prescription offerings, and including a better complement of Luxottica brand offerings. We’re excited to be under the same umbrella.”
Hauslein deferred to Luxottica when asked whether the two companies would be combined and, if so, who would run that entity, but said he expects to keep his job. As reported, Hauslein succeeded John Watson as ceo on Jan. 15.
In advance of the announcement, the Italian Bourse suspended trading of Luxottica at 10:30 a.m. Milan time. A statement released by the Bourse said it did so as a preemptive move to avoid irregular activity on the exchange. Trading resumed at 4:30 p.m. Luxottica closed up 15 cents at $13.47. Later in the day, Luxottica closed down 2 cents to $13.49 in New York Stock Exchange trading, while Sunglass Hut’s shares, traded under the ticker symbol “RAYS,” soared $3 to close at $11.31 on the Nasdaq.
Analysts in Milan were upbeat about the acquisition. “It certainly complements Luxottica’s retail strategy,” said Andrea Palladini, an equities analyst at Centrosim here. “Luxottica will now have a strong presence in both prescription eyewear and sunglasses — it’s a perfect synergy.”
Palladini, however, said he expects Luxottica would likely close the Watch Station division. “Luxottica has never had a stake in the watch sector. I think it’s quite obvious that they would want to close those stores, because they go against Luxottica’s core business,” Palladini said.
Reaction among Luxottica competitors was mixed, with many loathe to say anything against the behemoth. With a market share of about 50 percent, Sunglass Hut is a major retailer for many vendors, and as was the case with the LensCrafters acquisition, many are concerned that Luxottica will stock Sunglass Hut units with mostly Luxottica merchandise.
Claudio Gottardi, president and chief executive officer of number-two eyewear maker, Safilo, declined to comment on the deal until more details could be learned.
“Luxottica is a highly recognized and diverse company in our industry,” said Jim Simon, vice president of CXD, the upscale division of eyewear maker Charmant, which manufactures Hugo Hugo Boss and Boss, Christian Roth and the soon to be unveiled Michael Kors. “We do not expect the acquisition to have anything but a positive impact on our business.”
Not everyone was quite as ready to endorse the merger.
Al Berg, co-president of Marchon, which sells roughly $400 million of eyewear annually from such designers as Calvin Klein and Donna Karan, said, “Fortunately for Marchon, Sunglass Hut does not account for a lot of our business, although it is an important account for the industry. Luxottica will eliminate all the suppliers that they can replace with their own products and brands. This is not a good development for other suppliers and competition in general. This will make us and our accounts that support our products work harder and closer together. We walked away from LensCrafters and in the coming weeks we will be seriously discussing whether we believe a beneficial relationship can be created to warrant our continuing to supply Sunglass Hut.”
The development may be a bit ominous for Oakley, the Foothill Ranch, Calif.-based sunglass producer that has been Sunglass Hut’s biggest supplier. In the fourth quarter ended Dec. 31, Oakley’s sales to Sunglass Hut were up 28 percent to $14.3 million, accounting for 32.6 of the company’s domestic sales and 15.3 percent of sales overall, according to Oakley’s fourth-quarter earnings release.
While Oakley noted that shipments to specialty accounts other than Sunglass Hut grew in excess of 40 percent for the fourth consecutive quarter, the possible effect of the Luxottica acquisition chilled the investment community’s outlook on the stock. Shares fell $2.45, or 12.8 percent, to close at $16.65 on the New York Stock Exchange and Merrill Lynch downgraded the stock to near-term neutral from near-term accumulate.
Oakley officials were said to be discussing the development with security analysts throughout the day on Thursday and weren’t available for comment.