Bringing together Essilor and Luxottica: EssilorLuxottica

With this agreement my dream to create a major global player in the eyewear industry, fully integrated and excellent in all its parts, comes finally true. – Leonardo Del Vecchio, Chairman of Delfin and Executive Chairman of Luxottica Group

French EuroSTOXX50 Lens company Essilor and Italian company Luxottica (RayBan, Oakley) are planing to merger.  The news from the source (Essilor)

Together, Luxottica and Essilor would have, based on the companies’ 2015 results, the posted combined net revenues of more than €15 billion and combined net EBITDA of approximately €3.5 billion. Based on a preliminary analysis, the combined group is expected to progressively generate revenue and cost synergies ranging from €400 million to €600 million in the medium term and accelerating over the long term.

Luxottica’s Executive Chairman, Leonardo Del Vecchio, would serve as Executive Chairman and CEO of EssilorLuxottica. Delfin – the Luxembourg based holding company of the Del Vecchio Family – would own between 31% and 38% of the shares of EssilorLuxottica so they cleary have “skin in the game”.

Closing expected in H2 2017. The new company name will be EssilorLuxottica.

 

Quick and dirty valuation of EssilorLuxottica

Both companies look high quality to me so lets look what both of them could look like

essilorluxottica_combined_value

I assumed growth rates like in 2016 and cost synergies in the lower range.

Essilor has a market cap. of 24.7 bn €
Luxottia have a market cap. of 26.1 bn €
That would be 50.8 bn € combined (if it would be that easy)
With an assumed Net Income of 2.1 bn in 2017 that would be a PE-ratio of ~24 not that cheap.

 

The transaction looks quite complicated:

The transaction would entail a strategic combination of Essilor’s and Luxottica’s businesses consisting of (i) Delfin contributing its entire stake in Luxottica (approx. 62%) to Essilor in return for newly-issued Essilor shares to be approved by the Essilor shareholders meeting, on the basis of the Exchange Ratio of 0.461 Essilor shares for 1 Luxottica share, and (ii) Essilor subsequently making a mandatory public exchange offer, in accordance with the provisions of Italian Law, to acquire all of the remaining issued and outstanding shares of Luxottica pursuant to the same Exchange Ratio and with a view to delist Luxottica’s shares.

I will look at it tomorow again, maybe there is some trick in it?

 

 

Sources:

Luxottia

Luxottia multi year numbers

Essilor

Essilor Invetors page

Essilor 2015 Results

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Bayer AG / Monsanto

The german chemical and pharmaceutical company Bayer want’s to buy U.S. agrochemical company Monsanto (link: press release Bayer)

Bayer has made an all-cash offer to acquire all of the issued and outstanding shares of common stock of Monsanto Company for USD 122 per share or an aggregate value of USD 62 billion

Note: The shares are trading at around 110 $, this still would be an upside of roughly 10% now – looks like the market sees some uncertainties. I see the undisturbed price for Monsanto at around 90 – 95$.

Monsanto rejects $62B Bayer bid, but still is open to talks (link)

Monsanto shares closed regular trading up 3.1 percent at $109.30 and gained another 1.5 percent in after-hours trading, rising to $111.

Meanwhile:

Werner Baumann, CEO of Bayer AG is buying stocks almost worth 1 million € (link news in german language)
Moody’s reviews Bayer’s ratings for downgrade on Monsanto acquisition announcement (link Moodys)
Random people throwing around random numbers (link)
Some Bayer shareholders don’t like the deal (link)
That could be a problem, with some saying Bayer’s proposal, at 15.8 times Monsanto’s earnings before interest, tax, depreciation and amortisation (EBITDA) for the year ended Feb. 29, is already a stretch for the German company.

Let’s take a look at what Bayer is planning to pay for 62 bn

I looked at Monsantos 2015 annual report, which besides some nice photos of families marvel at corn presents us this numbers:  (link)

BAY-MON

Their 2024 Bond yields 3.24% (link morningstar)

From the 2Q2016 report (link)

Monsanto updated its fiscal year 2016 as-reported EPS guidance to be in the range of $3.72 to $4.48 per share, primarily due to a change in the expected timing for the accounting of restructuring expense. The company confirmed ongoing EPS guidance in the range of $4.40 to $5.10 per share.

Let’s be optimistic and assume that they can reach the $5.10 per share. At a price of 122 USD this would be a PE-ratio of 23.9 – not that cheap.

Bottom Line:

Like in mostly M&A activities this is an interesting case with some uncertainties and some chances. I don’t have deeper insight into this one but I will follow this from the sideline and hopefully will learn something from it. I’m planing to look at Bayer next.

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