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From Antitrust Law Daily, March 1, 2018

FTC, EC clear merger of Essilor and Luxottica

By Jody Coultas, J.D.

Both the FTC and the European Commission (EC) today closed investigations of the proposed merger between Essilor International (Compagnie Generale d’Optique) S.A. and Luxottica Group S.p.A., concluding that the $58.49 billion merger would not violate antitrust laws or lessen competition in the for eye care products. The merger combines the world’s leading consumer eyewear group and the largest manufacturer of lenses in the world (Proposed Acquisition of Luxottica Group S.p.A. by Essilor International (Compagnie Generale d’Optique) S.A., FTC File No. 171-0060).

Essilor, headquartered in France, manufactures and sells ophthalmic lenses, optical machines, optical instruments and eyewear, and operates optician retail businesses, mainly outside of Europe. Luxottica, headquartered in Italy, designs, manufactures, and distributes prescription frames and sunglasses, such as Ray-Ban, Oakley, and Persol, as well as more than 15 licensed brands including Armani, Chanel, Dolce & Gabbana, Prada, and Versace. Luxottica also operates optician retail businesses, mainly in the United States.

During the investigation, which began in September 2017, the EC received feedback from nearly 4,000 opticians throughout Europe. The FTC said that it reviewed more than one million documents produced by the merging parties, interviewed more than 100 market participants—including lens casters, wholesale laboratories, frame manufacturers, optical retailers, independent eye care professionals (iECPs), iECP alliances and buying groups, and managed vision care providers—and reviewed additional documents and data produced by more than 20 third parties.

The primary focus of the investigation was the possibility of vertical harm, including vertical foreclosure and raising costs for competitors. Specifically, the FTC and EC investigated whether the merged firm would have the ability and incentive to foreclose or raise the costs of iECPs. Essilor and Luxottica mainly sell complementary optical products, which do not compete with each other.

The EC noted that Luxottica's strongest brands in frames and sunglasses, including Ray-Ban, are generally not essential products for opticians. The merged firm would not be able to exploit any market power in sunglasses or eyewear to shut out competing suppliers of lenses from the market. Sunglasses are mostly sold without visual correction and account for a small portion of opticians' revenues.

The merged company would have limited incentives to engage in practices such as bundling and tying because of the risk of losing customers. Moreover, even if it followed such practices, this would be unlikely to marginalize competing suppliers of lenses and harm effective competition. Thus, the merger would not violate Section 7 of the Clayton Act, the FTC found.

Essilor is the leading provider of "free-to-choose" wholesale laboratory services, primarily serving iECPs. Historically, Luxottica has had a large lab network that primarily serves its own retail stores. Luxottica, however, recently built and opened one of the largest optical laboratories in the world in Atlanta. Evidence developed in the investigation indicated that Luxottica was unlikely to compete meaningfully for "free-to-choose" wholesale lab services. Thus, Luxottica’s potential entry into "free-to-choose" wholesale lab services was not a viable theory on which to predicate an enforcement action because the merger would not substantially reduce competition in this market.

Finally, the FTC examined whether the combination of Essilor’s retail presence through its Vision Source alliance and Luxottica’s retail stores (LensCrafters, Pearle Vision, optical sales operations at Target and Sears) would harm competition in retail optical stores markets. Even treating Vision Source members as if Essilor owned them outright (which it does not, and would require ignoring the fact that iECP members retain substantial control of their competitive decision making and profits), competitive harm would be unlikely.

The investigations were conducted over the past year by the FTC and EC, with cooperation from the competition authorities of Australia, Brazil, Chile, China, Israel, Mexico, Singapore, and South Africa.

Attorneys: David I. Gelfand (Cleary Gottlieb Steen & Hamilton LLP). Michael L. Sibarium (Pillsbury Winthrop Shaw Pittman LLP).

Companies: Essilor International (Compagnie Generale d’Optique) S.A.; Luxottica Group S.p.A.

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