Shamir Optical CEO: Deal with Essilor is joint venture

French giant Essilor and Kibbutz Shamir will become equal shareholders in the multifocal lense developer.

Shamir Optical Industries Ltd. (Nasdaq: SHMR; TASE: SHMR), which develops multifocal lenses, and which is traded on Nasdaq and on the local stock exchange, announced on Friday morning that French giant Essilor (NYSE Euronext: EI) would buy half the company for $130 million in cash ($14.5 per share). The deal values Shamir at $260 million, more than double the market cap it fell to four months ago, when rumors began to circulate about a deal between the two companies. However, the price represents almost no premium on the price at which Shamir was floated five and a half years ago.

Shamir is about to distribute a dividend of $0.804 per share. Weighted for the dividend, the acquisition price is $15.30 per share, giving a premium of 57% on the average share price over the past three months.

In consequence of the deal, Shamir Optical will be delisted. The Israeli management team will remain in place. The deal is expected to close towards the middle of 2011. If it is cancelled, Shamir Optical will have to pay $11 million in compensation to Essilor.

According to Shamir Optical's announcement, shareholders holding 69.3% of its share capital have already consented to the deal. They include Kibbutz Shamir, Dan Katzman, the company's chief technical officer and its vice president for R&D, and US investment firm Royce and Associates, which specializes in investment in small companies.

Shamir Optical fits Essilor like a glove. It develops multifocal lenses, while Essilor is a world leader in developing a wide rang of ophthalmic lenses.

Shamir Optical is the only company listed on Nasdaq that develops multifocal lenses, that correct both near and long vision. The need for them arises from presbyopia, which affects many people over the age of 45. It consists of a hardening of the eye muscles, which makes it harder for the eye to adapt to long and near vision, and is not amenable to laser treatment.

Essilor will, as mentioned, acquire 50% of Shamir Optical in a series of deals, one of which is the purchase of 13.2% from Kibbutz Shamir, which will make the French company's holding equal to that of the kibbutz. The kibbutz will receive some $34 million.

"This is a fairly complicated deal, so it took time to put it together," Shamir Optical CEO Amos Netzer, who has held the position for sixteen months, told "Globes". "It is not a matter of acquiring the company; it is rather a joint venture."

Why was such a deal structure decided on? Did the kibbutz not want to sell all its holdings, or did Essilor not want to buy the company outright?

"It's not a question of wanting. The two sides reached the basic understanding that the kibbutz would remain with its business, while Essilor would continue to focus on its main activities. Nevertheless, both sides wanted to construct a mechanism that would enable them to gain from each other. Shamir Optical was never for sale. The aim of the deal is collaboration for the benefit of both sides."

Perhaps Shamir Optical hit a glass ceiling that it could not break through alone, and so it decided to team up with Essilor?

"No, really not. Shamir has grown nicely over the past two years, and even over the past six months. The connection with Essilor will enable it to grow faster."

There will be cultural differences between Shamir and the French company, and these are liable to prove stumbling blocks in the future, particularly as the two sides have equal holdings.

"I agree with you that it won’t be easy, but I think you'll agree with me that it's possible. The two companies have known each other for a while, and a good chemistry has formed between them, so both sides believe in their common future."

Will the synergies between the two companies mean a reduction in manpower at Shamir, or the transfer of some activity outside of Israel?

"No. The idea behind the deal is to join together two companies for development, not with the aim of cutting costs. On the contrary, we have plans for expansion. There is no doubt that the synergy will enable us to procure raw materials more cheaply, and to develop new products."

Essilor CEO Hubert Sagnieres said in the announcement of the deal, "This joint venture represents a strategic addition to Essilor's business and will strengthen our offer to the mid-tier segment with additional high-quality products. Shamir Optical's range of products fits closely with Essilor's.

"Thanks to our existing network, respective expertise and the potential for vertical cost synergies, our partnership will allow us to grow the worldwide optical business with innovative, new value-added products and services and to expand our offer to eyecare professionals around the world. Shamir Optical will continue to produce and promote its brands, products and services as a separate business entity."

Published by Globes [online], Israel business news - www.globes-online.com - on October 17, 2010

© Copyright of Globes Publisher Itonut (1983) Ltd. 2010

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