European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

On 21 June, a Dutch arbitration court ruled that <a href="https://www.smartkarma.com/entities/grandvision-nv" target="_blank" data-smartkarma-citation="entities:21114:1" rel="noopener">GrandVision NV (GVNV NA)</a> had breached its obligations under a €7,210 mn (€28.42/share) takeover offer from French-Italian eyewear giant <a href="https://www.smartkarma.com/entities/essilorluxottica-sa-369cd59a-eccd-455d-a37d-29ef3c41a705" target="_blank" data-smartkarma-citation="entities:21443:1" rel="noopener">EssilorLuxottica (EL FP)</a> (EssiLux) agreed in 2019. The ruling means EssiLux is no longer obliged to purchase GrandVision, can walk away without paying a €400 mn break-up fee and even could claim compensation from GrandVision.
This has happened when all competition clearances and regulatory approvals required to complete the transaction have already been obtained. Financing of the deal is already raised.
I regard the rationale for acquiring GrandVision as still compelling and unaffected by the court ruling. The deal still has significant strategic value, as it is set to rebalance EssiLux's channel mix of retail and wholesale in Europe and enlarge its geographical diversification. Furthermore, Capital IQ consensus points to a recovery in sales and increasing EBITDA margins of GrandVision.
I believe that EssiLux's arbitration victory is an opportunity to renegotiate with HAL to lower the agreed price. It is not dissimilar to LVMH renegotiating terms with Tiffany. There are still high chances that the deal completes, at a lower price.
The share price of GrandVision has fallen by c. 11%, so this seems to indicate that interlopers are unlikely to arise. An excuse for lowering the agreed price would be to compensate for the effects of the pandemic.
My TP is €27/share, a 5% reduction to the agreed price (savings of €360 mn for EssiLux), which I cross check against a multiples based implied median valuation of €29.72/share and a mean TP of €27.44/share of Capital IQ consensus.
EssiLux should pick up a bargain. At my TP, upside is 7%. Recommendation is long GVNV NA.

On 21 June, a Dutch arbitration court ruled that GrandVision NV (GVNV NA) had breached its obligations under a €7,210 mn (€28.42/share) takeover offer from French-Italian eyewear giant EssilorLuxottica (EL FP) (EssiLux) agreed in 2019. The ruling means EssiLux is no longer obliged to purchase GrandVision, can walk away without paying a €400 mn break-up fee and even could claim compensation from GrandVision.
This has happened when all competition clearances and regulatory approvals required to complete the transaction have already been obtained. Financing of the deal is already raised.
I regard the rationale for acquiring GrandVision as still compelling and unaffected by the court ruling. The deal still has significant strategic value, as it is set to rebalance EssiLux's channel mix of retail and wholesale in Europe and enlarge its geographical diversification. Furthermore, Capital IQ consensus points to a recovery in sales and increasing EBITDA margins of GrandVision.
I believe that EssiLux's arbitration victory is an opportunity to renegotiate with HAL to lower the agreed price. It is not dissimilar to LVMH renegotiating terms with Tiffany. There are still high chances that the deal completes, at a lower price.
The share price of GrandVision has fallen by c. 11%, so this seems to indicate that interlopers are unlikely to arise. An excuse for lowering the agreed price would be to compensate for the effects of the pandemic.
My TP is €27/share, a 5% reduction to the agreed price (savings of €360 mn for EssiLux), which I cross check against a multiples based implied median valuation of €29.72/share and a mean TP of €27.44/share of Capital IQ consensus.
EssiLux should pick up a bargain. At my TP, upside is 7%. Recommendation is long GVNV NA.

Likely Renegotiation in EssiLux/GrandVision

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

On 31 July 2019, <a href="https://www.smartkarma.com/entities/essilor-international" target="_blank" data-smartkarma-citation="entities:21443:1" rel="noopener">Essilor International (EI FP)</a> announced an agreement to acquire HAL’s 76.72% stake in <a href="https://www.smartkarma.com/entities/grandvision-nv" target="_blank" data-smartkarma-citation="entities:21114:1" rel="noopener">GrandVision NV (GVNV NA)</a> for €28 per share, to be increased by 1.5% to €28.42 if the closing does not occur within 12 months from the announcement date i.e. 31 July 2020. After the transaction has closed, EssilorLuxottica will launch a mandatory cash public offer at the price per share paid to HAL. <div class="content-highlight">The spread averaged 2.0% from 31 July 2019 to 13 March 2020 but increased to a high of 57.7% on 18 March. The spread exploded due to a combination of high market volatility and concerns that the transaction will not meet completion conditions. Overall, we believe that the transaction risk is low. The gross spread currently sits at 17%. The annualised spread is 55% for 31 July 2020 completion and 25% for year-end completion.   </div>

On 31 July 2019, Essilor International (EI FP) announced an agreement to acquire HAL’s 76.72% stake in GrandVision NV (GVNV NA) for €28 per share, to be increased by 1.5% to €28.42 if the closing does not occur within 12 months from the announcement date i.e. 31 July 2020. After the transaction has closed, EssilorLuxottica will launch a mandatory cash public offer at the price per share paid to HAL. The spread averaged 2.0% from 31 July 2019 to 13 March 2020 but increased to a high of 57.7% on 18 March. The spread exploded due to a combination of high market volatility and concerns that the transaction will not meet completion conditions. Overall, we believe that the transaction risk is low. The gross spread currently sits at 17%. The annualised spread is 55% for 31 July 2020 completion and 25% for year-end completion.   

EssilorLuxottica/GrandVision Attractive Spread

Netherlands

Grandvision N.V. sells and distributes prescription eyeglasses, contact lenses, contact lense care products, and non-prescription sunglasses. The Company distributes their products in Europe and Asia.

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GrandVision NV (GVNV NA)

Likely Renegotiation in EssiLux/GrandVision

EssiLux's arbitration victory opens the opportunity to renegotiate the price, with no interlopers in sight, a 5% reduction is likely. My TP is €27...

Jesus Rodriguez Aguilar

EssilorLuxottica/GrandVision Attractive Spread

On 31 July 2019, Essilor International (EI FP) announced an agreement to acquire HAL’s 76.72% stake in GrandVision NV (GVNV NA) for €28 per share,...

Arun George

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