Essilor to Acquire PPG’s 51 Percent Stake in Transitions Optical, Giving It Full Ownership

CHARENTON-LE-PONT, France— Essilor International (Reuters: ESSI.PA) and PPG Industries (NYSE:PPG) announced today the companies have reached an agreement for Essilor to acquire PPG Industries’ 51 percent stake in Transitions Optical. Essilor has held a 49 percent share of Transitions Optical since the joint venture company’s formation in 1990. The transaction, valued at $1.73 billion at closing, also includes the acquisition of Intercast, a leading supplier of sun lenses. The acquisitions will significantly strengthen Essilor’s position in both the photochromic and sun lens segments.

Essilor and PPG announced in January, 2013 that they were currently in discussions relating to the future of Transitions Optical. Based in Pinellas Park, Fla., Transitions Optical is the inventor of variable-tint plastic lenses. Its business has been developed jointly by Essilor and PPG’s teams. Transitions Optical designs and produces a wide range of variable-tint lenses that are sold through the networks of its customers, ophthalmic lens manufacturers. The majority of its products are distributed under the Transitions brand, one of the best known global optical brands alongside Varilux and Crizal. Transitions Optical generated revenue of $814 million in 2012, of which around $310 million was with lens manufacturers other than Essilor.

Under the agreement, Essilor will also acquire 100 percent of the capital of Intercast, a high-performance sun lens manufacturer based in Parma, Italy. In 2012, Intercast revenue stood at nearly $34 million.

Commenting on the transaction, Hubert Sagnieres, Essilor’s chairman and Chief Executive Officer, said: “This agreement marks the start of a new phase of growth for Transitions Optical, which Essilor and PPG have turned into a leader in photochromic lens products. The acquisition of Transitions Optical is fully aligned with Essilor’s strategy. It's a company we know well, so the integration process should be smooth. It will enable us to boost expansion in the photochromic segment, which is growing twice as fast as the optical industry, notably in Asia, Latin America and Europe.

"The Transitions brand which, like Varilux and Crizal, is a frontline eyecare brand, will continue to be available to all lens manufacturers worldwide. The acquisition of Intercast will add to Essilor’s positioning in the sun lens segment, which enjoys significant growth potential. All in all, the integration of Transitions Optical and Intercast into our portfolio of businesses will lead to a significant improvement in the group’s profitability and create value for our shareholders and consumers.”

PPG will remain a key partner for Transitions Optical, as a supplier of dyes as well as long-term research and development services, according to Essilor.

Dave Cole, president, Transitions Optical, commented: “Since the founding of our business 23 years ago, our parent companies have been key to Transitions Optical’s success. We appreciate PPG’s long investment in and collaboration with our organization. We look forward to a continued strong relationship with PPG as they will be providing ongoing research and development services and optical dyes to Transitions Optical under multi-year agreements with Essilor.

“Essilor has been a collaborative partner with us from the beginning, and this transaction is a continuation and enhancement of a relationship that has brought value to us and to our industry. There are tremendous opportunities to boost expansion of photochromic products, particularly in fast-growing markets.”

The transaction is expected to close in the first half of 2014, subject to the satisfaction of customary closing conditions, including receipt of regulatory approvals, according to separate statements issued by Essilor and PPG. In the interim, Transitions Optical will continue to be a separately managed and operated company, PPG said. Supply of Transitions lenses to customers will not be affected by this announcement, and Transitions lenses will continue to be available through other lens manufacturers, the company said.

The Transitions Optical leadership team will continue to run the business as usual, according to PPG. Cole said, “We will continue to focus on strengthening our mutually beneficial relationships with all of our valued customers across the optical industry; leveraging the talents of our passionate, talented people; and providing the highest quality photochromic lenses to consumers.”

The consideration for the transaction amounts to $1.73 billion at closing, as well as a deferred payment of $125 million dollars over five years, for 51 percent of the capital of Transitions Optical and 100 percent of Intercast.

Based on current estimates, Essilor estimates the transaction should have a positive impact on its financial indicators:

• A rise in the consolidated contribution margin to 19.5 percent from year two of the integration;
• An accretive impact on earnings per share as of year one of the integration, and of at least 5 percent per annum in subsequent years;
• A positive impact of 50 bps on like-for-like growth in consolidated revenue as of year three of the integration.

Following the transaction, which will be entirely funded from Essilor’s cash resources and medium term financing, the consolidated debt-to-equity ratio will remain below 40 percent.