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S&P affirms EssilorLuxottica on GrandVision deal

S&P Global Ratings on July 31 affirmed the ratings of French-Italian lens and eyewear maker EssilorLuxottica SA following its announced plan to acquire its Dutch rival GrandVision NV in a deal worth about €7.9 billion, including debt.

EssilorLuxottica agreed to buy a 76.72% stake in GrandVision for €28 per share that would trigger a mandatory public offer for all outstanding GrandVision shares.

The deal came less than a year after lens maker Essilor International SA and eyewear producer Luxottica Group S.p.A. completed their merger to form one of the biggest companies in the eyewear industry.

Ratings said the purchase of GrandVision is in line with EssilorLuxottica's strategy and will boost the group's retail activities in Europe. The rating agency said the company's mostly debt-funded acquisition will not materially affect its overall credit quality.

The affirmation covers EssilorLuxottica's A/A-1 issuer credit ratings and its senior debt instruments. Ratings also maintained the group's stable outlook to reflect the agency's view that the company's performance and free cash flow generation would strengthen incrementally over the next two years.

The agency added that the GrandVision acquisition will likely strengthen the group's global leading market positions in lenses and frames, as well as its ability to maintain a price premium.

Ratings said it could lower the ratings if friction at the board level will continue. Essilor and Luxottica had been embroiled in a conflict over the company's leadership but reached a settlement in May, with both companies agreeing to instead search for an outside CEO.

Ratings said conflicts at the board level will result in delays as the two entities are still working towards integrating their businesses.

Meanwhile, the agency said it could raise the rating if the corporate governance problems have been completely resolved and if EssilorLuxottica achieves full integration of its operations. Ratings said solid operating performance in the changing retail environment could also lead to an upgrade.

The rating affirmation came shortly after the group posted a 6.8% year-over-year rise in net profit for the first six months of the year, owing to strong sales across all product segments.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.