In the second of two multi-billion dollar deals to hit the sporting goods industry this week (the first being the Finish Line-Genesco acquisition at $1.5 billion), the Luxottica Group will acquire Oakley for roughly $2.1 billion, or $29.30 per share. This is an 18% premium to shareholders over the most recent 30-day average trading price of Oakley shares and approximately 24% over the most recent three-month average trading price.
The total enterprise value of the deal is not only over 2X last years revenue figures, it is over 2X projected 2007 revenues. In 2006, Oakley reported $761.9 million and guidance for 2007 was roughly $930 million. Oakleys operating income in 2006 was $69.8 million, placing the deal at roughly 30X operating income.
“This is not an integration. I want to be clear at the beginning of the call. This is not the Ray-Ban acquisition. This is not one of those acquisitions by Luxottica where we are restructuring from A to Z the company that we buy. We are combining two strengths,” said Luxottica CEO Andrea Guerra during a conference call with analysts.
Luxottica expects to see $100 million in synergies by 2010 from the deal, part of which will come from increased mutual distribution and part of which will come from cost savings. On the wholesale side, Luxottica owns brands like Arnette, Revo, Killer Loop, Burberry, Bvlgari and DKNY, among others. The company will be adding Oakley, Dragon, Fox Eyewear and ESS goggles.
Scott Olivet will remain CEO of Oakley and his management team will retain their titles. Olivet will report to Guerra. Oakleys management team will also likely take on some of the branding responsibilities for Luxotticas existing sport brands like Revo and Arnette.
Luxottica also owns an extensive retail network in the U.S. and internationally, and this is where they see most of the synergies. Luxotticas retail brands include LensCrafters and Pearle Vision in North America, OPSM and Laubman & Pank in Asia-Pacific, and Sunglass Hut globally. The Oakley deal will add Sunglass Icon, Oaklet Vault, Oakley Stores, Oliver Peoples, The Optical Shop of Aspen and Bright Eyes. This would give Luxottica a dominant brand presence through several retail distribution channels, especially in the mall. One analyst brought up the possibility of FTC action, but Luxottica dismissed the possibility.
The transaction is expected to close in the second half of 2007, but it is still subject to the approval of Oakley's shareholders and the satisfaction of other customary conditions, including various governmental approvals.