August 14, 2020 | Consumer Discretionary | Europe | Ended

GrandVision / EssilorLuxottica: Cut and Termination Scenarios

The vertical merger between GrandVision (“GV”), a pan-European optical retailer, and EssilorLuxottica (“EL”), a predominant supplier of eyewear, is under increased pressure after the acquirer, EL, initiated legal proceedings against its target. Dutch courts are expected to rule on the litigation elements within a couple weeks but EL’s actions make it clear that it is seeking to either reduce the offer terms – announced pre-COVID-19, over a year ago – or to walk away from the transaction. In this report, we analyse EL’s ability to lapse or renegotiate under multiple circumstances and assess the likelihood of EL doing so given changes in the deal dynamics, companies, funding, and antitrust reviews. We forecast feasible Dutch court and arbitration rulings and their implications for the deal. Finally, after analysing other pending and ‘cut’ public M&A deals due to COVID-19, we suggest how to strategically invest in this situation.

Contents 1. Changes Since Announcement: Rates, Forecasts, Accretion/Dilution 2. Developments in Dutch Courts and Expected Rulings and Outcomes 3. Reducing the Offer Consideration: Small or Big Cut, Precedents 4. Terminating the Transaction: Failed Condition, Breached Agreement 5. Antitrust: Risks and Divestiture Expectations 6. Risk Arbitrage Trading Recommendations Appendices A. The Vertical Eyewear Market B. COVID-19 Affected M&A Transactions (40 pages)

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