Anticipated acquisition by Essilor International (Compagnie Generale d'Optique) S.A. of Signet Armorlite Inc.

Affected market: Ophthalmic lenses

No. ME/3992/09

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 11 March 2009. Full text of decision published 31 March 2009.

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

PARTIES

Essilor International (Compagnie Generale d'Optique) S.A. (Essilor) is a French company listed on Euronext. It is the parent and holding company for the Essilor Group of companies, whose main activities are the manufacture and supply of finished glass and plastic ophthalmic lenses to opticians worldwide. Essilor also supplies ophthalmic substrate  to independent laboratories and integrated opticians for shaping and additional processing. In the UK a subsidiary, Essilor Limited, sells a range of branded ophthalmic lenses; another, BBGR, sells non-branded private label lenses to opticians; while two further subsidiaries, Sinclair and United, are lens wholesalers. Essilor also supplies safety lenses to [  ].

Signet Armorlite Inc. (Signet) is a privately owned company based in the USA. Its main activities are the manufacture and supply of finished glass and plastic ophthalmic lenses to opticians worldwide (although glass ophthalmic lenses are not supplied to the UK), and the supply of ophthalmic substrate to independent laboratories and integrated opticians for shaping and additional processing. While Signet also supplies glass and plastic safety lenses and plastic safety glasses, these are not supplied to customers in the UK.

Signet controls the licence rights to Kodak Lens Vision Centres (KLVC) which are operated by opticians through individually arranged agreements with Signet. Through these centres it sells its own and Kodak branded lenses in the UK. Signet owns the right to use the Kodak brand until [ ].

In 2007, approximately [ ] of Signet's worldwide group turnover was generated in the UK.

TRANSACTION

Essilor, through its wholly-owned subsidiary, EOA Holding Co. Inc. has agreed to acquire all the shares of Signet. The transaction has been notified in Brazil, Germany, Spain and the United States, and, to date, cleared by Germany and Spain. The transaction was announced on 15 January 2009 and the administrative deadline for a decision is 12 March 2009.

JURISDICTION

As a result of this transaction Essilor and Signet will cease to be distinct. The parties overlap in the supply of ophthalmic substrate and finished plastic ophthalmic lenses in the UK and 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

Third party views have been discussed above where appropriate. In general they were mixed with some representatives of each group contacted expressing some concern.

The independent laboratories that responded to the OFT's questionnaire were equally split as to whether the merger created competition issues. Those that considered that it would create issues were largely concerned about the ability of the merged entity to foreclose on the supply of its substrate and finished lenses to the laboratories, about reductions in the choice of supplier and about increases in price. As mentioned above, other independent laboratories pointed to between 8 and 12 other suppliers of generic substrate available to independent laboratories. As well as, a (albeit more limited) number of branded suppliers, including Carl Zeiss, Seiko Pentax and Hoya.

Just two large optical retailers responded to the OFT's questionnaire and, again, their views were split with one considering that its buyer power might be affected, and with the other doubting whether the merger would impact upon its buyer power. In any case, post merger these firms would continue to have at least four other lens manufacturers to purchase from.

Competitor's views were also mixed. Competitors thought that integrated optical chains such as Boots, Dolland & Aitchinson, Optical Express and Vision Express had buyer power, and while lens buyers were, on the whole, brand loyal, competitors considered that switching would occur if prices rose. As noted above, some concerns were expressed at estimated market shares based on the SwV report - which estimated the parties combined market share as some [40-50] per cent (increment [5-10] per cent) – but the OFT believes it more appropriate to take the parties own figures for this overlap.
 
ASSESSMENT

The parties overlap in the ophthalmic substrate and finished plastic ophthalmic lens markets.

In the supply of ophthalmic substrate, the merger results in Essilor having a market share of around [35-45] per cent, increment some [5-10] per cent for both sales to third parties and intra group sales. While the merger may result in a reduction in the number of potential suppliers for independent laboratories, third parties were able to identify a number of alternatives, and the increment is a relatively modest [5-10] per cent, therefore the OFT does not consider there to be a realistic prospect of a substantial lessening of competition. This assessment does not alter if 'captive' sales are also taken into account, or if branded and generic substrate are considered separately.

In the supply of finished lenses, Essilor is the market leader with a market share of some [30-40] per cent, with a strong reputation for quality and innovation. However, the increment provided by the merger is less than [5] per cent and ultimately increases Essilor's market share to [30-40] per cent. In addition, at least five strongly branded competitors would continue to be active post-merger as well as the unbranded lenses produced by independent laboratories from generic substrate. This assessment does not alter if plastic lenses or individual corrective designs are considered separately.

Consequently, taking into account all of the evidence it has received, 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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