Anticipated acquisition by Luxottica S.p.A. of Oakley Inc.

Affected market: Manufacturing and wholesale distribution of sunglasses and frames for prescription glasses and retail distribution of sunglasses

No. ME/3242/07

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, third party views, assessment and decision.

The OFT's decision on reference under section 33(1) given on 12 October 2007. Full text of decision published 22 October 2007.

Please note that square brackets indicate text or figures which have been deleted or replaced with a range at the request of the parties for reasons of commercial confidentiality.

PARTIES

Luxottica Group S.p.A. (Luxottica) is active worldwide in the design, manufacturing and distribution of sunglasses and frames for prescription glasses. Its brand portfolio includes its own brand Ray Ban and its licensed brands Bvlgari, Chanel, Dolce & Gabbana, Donna Karan, Prada, Versace and Polo Ralph Lauren. In the UK Luxottica is active as a wholesaler of sunglasses and frames for prescription glasses, and as a retailer of sunglasses and prescription glasses through its Sunglass Hut stores and through a 50 per cent stake in the David Clulow chain of opticians.

Oakley Inc. (Oakley) is active worldwide in the design, development, manufacturing and distribution of performance eyewear products, including sunglasses and prescription glasses, as well as Oakley branded clothing, footwear, watches and accessories. In addition to its owned Oakley and Oliver Peoples brands, its licensed brands include Paul Smith. In the UK Oakley is active as a wholesaler and retailer of these products. In 2006 Oakley's UK turnover was £[less than 70] million.

TRANSACTION

Luxottica proposes to acquire all of the outstanding shares of Oakley, subject, among other things, to clearance by the relevant competition authorities.

The parties filed a satisfactory submission on 22 August 2007. The administrative deadline is therefore 18 October 2007.

JURISDICTION

As a result of this transaction Luxottica and Oakley will cease to be distinct. The overlap between the parties' activities includes the wholesale distribution of sunglasses, for which the parties' combined share of supply exceeds 25 per cent. As a result, the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met. The OFT therefore believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.

THIRD PARTY VIEWS

The majority of third parties did not raise competition concerns about the merger.

Two customers expressed a concern in relation to the size of the merged company and its importance for their sales after the merger. One of the parties' brand licensors expressed a concern that the merger will increase the already large concentration of the market. No other customers and brand licensors raised concerns.

One of the parties' competitors raised concerns in relation to the addition to the parties' brand portfolio and increased retail presence as a result of the merger. No other competitors raised concerns.

ASSESSMENT

The parties overlap, as far as material for the competition assessment, in the manufacturing and wholesale distribution of sunglasses and frames for prescription glasses and in the retail distribution of sunglasses.

In relation to the manufacturing and wholesale distribution of sunglasses, Luxottica is currently the largest supplier and, while the merger will result in only a small increment to its share of supply in the EEA, in the UK the merger will increase Luxottica's share substantially. However, a number of competitors remain present and the merger will not remove Luxottica's closest competitor. Also, although the evidence on barriers to entry and buyer power was mixed, the importance of brands and brand licensing arrangements form considerable constraints on the parties' behaviour.

On this basis, the OFT does not consider that the merger raises competition concerns in relation to the manufacturing and wholesale supply of sunglasses. This conclusion is the same if the frame of reference is defined more narrowly. If the supply of premium sunglasses is considered separately, although the parties have a higher share of supply, the constraints identified apply equally. If different styles of sunglasses are considered separately, the overlap between the parties is limited given Luxottica's emphasis on fashion-oriented sunglasses and Oakley's emphasis on sports-performance sunglasses.

In relation to the manufacturing and wholesale distribution of frames for prescription glasses, the parties' shares in both the EEA and the UK are smaller than in relation to sunglasses, and the increment as a result of the merger is very small. As, in addition, the same constraints apply as in relation to sunglasses, the OFT does not consider that the merger raises competition concerns in this respect.

Further, the OFT does not consider that the addition of Oakley's brands to Luxottica's brand portfolio raises competition concerns, in view of the fact that none of the parties' customers stated that they are forced or incentivised to purchase less important brands through a link with the purchase of strong brands, despite Luxottica's already strong brand portfolio, and in view of a degree of buyer power on the part of larger customers.

The increment as a result of the merger to the parties' share of the retail distribution of sunglasses in the UK as a whole is extremely small, and in the two locations where there is an overlap between the parties' stores there are a number of competitors in the local area. On this basis, the OFT does not consider that the merger raises competition concerns in relation to the retail distribution of sunglasses or in any retail distribution segment.

The OFT also considers that the strengthening of vertical links as a result of the merger will not give the merged company the ability to pursue a foreclosure strategy in view of its lack of sufficient market power at both the wholesale and the retail level.

Consequently, the OFT does not believe that it is or may be the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

DECISION

This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.

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