23 Jan 2017

Luxottica and Essilor agree €50bn merger

Deal creates global leader in fast-growing eyewear industry

Italy’s Luxottica and France’s Essilor have agreed a €50bn merger deal.  The merger combines Luxottica, world leading consumer eyewear group and owner of Ray-Ban, Oakley and Sunglasses Hut, with Essilor, a maker of lenses. The deal is without a doubt one of the largest ever European cross-border transactions, creating a global leader in the fast-growing eyewear industry.

The two companies were worth a combined 46.3 billion euros, or about $49 billion, based on their market capitalization. The resultingcompany, EssilorLuxottica, now has more than 140,000 employees and sales in more than 150 countries. The transaction is expected to close in the second half of 2017.

The deal is the cream on the crop in a renewed market, the Italian one, where the value of cross border merger and acquisition deals has recently reached a new high. Italian companies are in fact the most targeted by foreign acquisitions in the European Union after the UK, along with France.

Foreign investments are traditionally well seen in Italy and often welcomed as there are no general restrictions on foreign investments. But what are the key issues for Mergers and Acquisitions (M&A) under Italian Law? What are the most common ways to acquire a private company? What are the main advantages and disadvantages of a share purchase as opposed to an asset purchase?

Mergers and Acquisitions are transactions through which the ownership of a company is transferred or merged.

In Italy M&A mayor vehicles are:

  • Joint stock companies (Società per Azioni) (SpA).
  • Limited liability companies (Società a responsabilità limitata) (Srl).

M&As can happen through asset deals and share deals.

  • Share sales

A stock sale is the purchase of the owner’s shares of a corporation. The transfer of shares is perhaps the fastest way to transfer a private company. It is indeed a relatively easy process, considering that formalities are very limited and there are no material taxes due on the transfer.

The Italian Civil Code provides some specific rules for M&A as it specifically defines the concept of business or business branch (azienda and ramod’azienda) and regulates their transfers (Arts. 2555 to 2562, the Italian Civil Code) in order to guarantee continuity of the business and protection of both creditors and employees of the business.

Typically, in a share sale agreement we find the following elements:

  • Non-occurrence of a material adverse change between signing and closing (MAC clause).
  • Third party consents.
  • Bank financing.
  • In some cases, the prior necessary obtaining of competition approvals from antitrust authorities.

Moreover, to go for a stock sale gives the Buyer the advantage that the change of controlling interest in the target company does not determine a formal change of employer. This determines that there are no express legal obligations to notify, or consult with, trade unions in advance.

  • Asset sales

An asset sale is the purchase of individual assets and liabilities. Under Italian legislation, the protective rules of the Civil Code apply when the asset sale qualifies as a transfer of an undertaking, business or part of a business. In this case, a general principle establishes that the consent of the other contracting party is required to transfer the contract. With a transfer of a going concern, the other contracting party’s consent is not necessary, although the other contracting party can still withdraw.

The consent of the creditors is not a necessary requirement for the effectiveness of the sale. It should be noted though that the seller is not freed from the relative debts without creditors consent. Employees are automatically transferred.

In the preliminary agreements phase, it is common practise for the buyer and the seller to sign a letter of intent before the contract is entered into. Under Italian law, a preliminary agreement is normally binding once there is accordance on the main elements of the transaction – meaning price and object – anyhow the binding essence of the document as well depends on the specific case and on the will of the parties.

M&As are time consuming processes, where lot of time and money may be invested for the preparation and assessment of the transaction, for example, by conducting a due diligence. It is therefore not a case that usually exclusivity agreements are included in the transaction, as well as NDAs, even though duty of confidentiality is already included in the general principle of good faith in negotiations.

In both asset deals and share deals besides, extensive R&W provisions are usually included in the purchase and sale agreement. The R&W clauses are crucial and must be carefully tailored and assessed on the basis of either the nature of the target and transaction.

If you have any further questions regarding M&A regime under Italian Law, please do not hesitate to contact our Italian department.  You can contact our offices calling the number +39 091 625 88 54 or e-mail us at info@kentonmiles.net.

KMLegal will offer you our experienced English-speaking advisors who take care of the whole M&A process. We:

  • source suitable companies based on Client’s requests, investigating their financial position;
  • support the Client in evaluating the business deal and the M&A investment process;
  • structure Mergers & Acquisitions or Joint Ventures in Italy;
  • perform due diligence in order to optimize the transaction investment and reduce negotiation risks;
  • assist our clients in negotiating transactions, letters of intent, contracts, warranties, guaranties and all the other features of the deal
  • provide post M&A advising

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