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The world's top eyewear company Luxottica and the leading lense manufacturer Essilor will merge into an eyewear giant with an expected annual revenue of over €15 billion.

The two companies signed a merger agreement earlier today that creates one of the largest eyewear groups that is capable of producing both design frames for such brands as Ray-Ban and Oakley as well as the "best-in-class" ophthalmic lenses. The combined company is expected to have a market value of more than €46 billion based on the firms' current market capitalizations of €24 billion for Milan-based Luxottica (NYSE: LUX) and €22 billion for the French Essilor (FP: EI).

The deal between the two leading eyewear companies that produce complementary products, design frames and lenses, was immediately supported by investors that sent the shares of both companies soaring. Within a few hours, Essilor jumped as much as 19% whereas Luxottica gained 15%, said Bloomberg.

"The marriage between two key companies in their sectors will bring great benefits to the market, for employees and mainly for all our consumers. Finally, after fifty years, two products which are naturally complementary, namely frames and lenses, will be designed, manufactured and distributed under the same roof," said Luxottica's Executive Chairman Leonardo Del Vecchio, according to the statement.

As a result of the merger that comes with attractive financial advantages, the new company will compete with the second-biggest luxury eyewear company, Hermes International, said Bloomberg. The two companies said that investors can expect combined revenues of more than €15 billion based on their individual performances in 2016 and the cost synergies in the range of €400 million to €600 million. Considering that Luxottica is the world's leading eyewear retailer while Essilor is the largest industry's manufacturer, the merger was naturally considered a promising business partnership.

As part of the deal, Delfin, the holding company of Luxottica's 81-year-old founder and billionaire Leonardo Del Vecchio, will contribute its entire stake in Luxottica, about 62%, to Essilor in return for the newly-issued shares with an exchange ratio of 0.461 Essilor share for each Luxottica share. After that, Essilor will buy out all remaining Luxottica shares and delist Luxottica from the stock exchange, the statement said. Del Vecchio will still be the main shareholder of the newly-created company EssilorLuxottica listed in Paris, with a 31% to 38% stake and 31% of voting rights. Bloomberg added that this bid is a 5% discount from the closing price of the last trading day on Friday.

The right moment

The governance of the company will be equally divided between Luxottica's founder and CEO Del Vecchio and Essilor's CEO Hubert Sagnières that will take on roles of a vice-chairman and a deputy CEO. The result of this multibillion merger is a large multinational company that employs over 140,000 employees and operates in more than 150 countries. Interestingly, this is not the first time Luxottica and Essilor consider a merger. Back in 2014, the two companies already discussed the possibility but the deal was dropped due to "shareholder governance issues", said Reuters.

"With this agreement my dream to create a major global player in the eyewear industry, fully integrated and excellent in all its parts, comes finally true. It was some time now that we knew that this was the right solution but only today are there the right conditions to make it possible," Del Vecchio said.

Luxottica has been dealing with a management crisis in the last years, as three CEOs left the company within a little less than a two-year period. The founder of the company Del Vecchio took over the executive role two years ago, although the decision was mostly criticized by the analysts concerned about the company's succession. Merging with Essilor has been long discussed as a possible solution, considering a more than a 20-year age difference between Luxottica CEO Del Vecchio and Essilor's Sagnières.

On top of that, the industry experts believe that the eyewear market will only grow in the next few years. For EssilorLuxottica as a combined company capable of producing finished products "under the same roof", this could mean even further growth of a market share. The main reason for that is a major demographic shift that comes with a rapidly aging population, especially in Asia, explained the experts. The Financial Times said that out of the entire world's population, as many as 63% need vision correction while less than half of that affected population actually bought glasses, lenses or received specialized treatment. Asia, Africa and Latin America are considered to be most vulnerable for vision problems in the future.

That is why, thanks to a large international distribution network of both companies and growing demand in the industry, this merger could be the companies' best bet to push their market capitalization.

The merger will still need to get an approval of shareholders and the EU regulators in the next months.

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