European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

EssilorLuxottica/GrandVision Attractive Spread

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