The merger between Essilor and Luxottica has been presented to shareholders as a merger of two firms of similar size, with balanced governance for the new structure, EssilorLuxottica.
As far as Phitrust is concerned, there is no strategic contestation concerning this merger. However, in 2017 and 2018 Phitrust had already submitted several written questions for the AGM of Essilor, expressing reserves on the balance of this new governance. The Chairman & CEO, Leonardo Del Vecchio, disposes not only of last resort powers, but could also control the new structure via his family holding company, Delfin, with 38.9% of capital (31% of voting rights). In order to re-establish the balance between management and supervisory powers, the separation of the functions of Chairman of the Board and Chief Executive Officer seemed essential.
Thus, Phitrust submitted a resolution project on October 23rd with other investors. On November 5th, Leonardo Del Vecchio announced that he would propose to the Board of Directors, the nomination of Francesco Milleri, current Deputy Chairman & CEO of Luxottica, as Chief Executive Officer of the new firm EssilorLuxottica. This declaration does not correspond to the Rules of Procedure of the Board of Directors, published on October 1st 2018, or to what was announced by the Board of Directors, stating that the Nomination and Compensation Committee would be mandated before the end of January 2019 to lead the search process for a Chief Executive Officer.
Phitrust has submitted several written questions to the Board of Directors for the AGM of November 29th, 2018:
1. Concerning the organization of the governance, most notably on the possible nomination of Francesco Milleri as CEO, as well as the position and functions, which will then be assigned to Hubert Sagnières. The nomination of Francesco Milleri would add to the disparity between the shareholders of Luxottica and Essilor, risking to morph into a takeover of EssilorLuxottica.
2. Concerning the remuneration of the Directors of EssilorLuxottica: while the merger operation is far from being over, the remuneration of the Directors have increased, most notably the remuneration of Leonardo Del Vecchio, which would grow from a fixed remuneration of 1.1 M€ to a total remuneration of 10 M€. The Directors’ fees for the Board follow an identical trajectory of +127%, a much higher level (>184%) compared to companies of a similar capitalization.
3. Concerning Luxottica’s Director’s Fees: Put in place more than 7 months after the General Assembly approving the merger, this plan destined for Luxottica’s executives (15 M€ for 5 executives, including 4 M€ for Francesco Milleri) seems to only benefit Luxottica’s executives, leading to an imbalance with those of Essilor International. How does EssilorLuxottica’s Board plan on compensating this sum, which in hindsight will impact the values of the transfers of assets initially presented to the shareholders?
4. If the nomination of Francesco Milleri as CEO is confirmed: The shareholders must be informed of the level of his current remuneration as “Deputy Chairman & CEO” at Luxottica, as well as his probable evolution, and other eventual remunerations assigned by subsidiaries. Finally, Mr. Milleri’s IT (Information Technology) services firm supplies Luxottica’s computer services. Was there a tender for these contracts and will the activities of this IT services company be continued under the new group EssilorLuxottica? In this case and in order to avoid any conflicts of interest, EssilorLuxottica’s new CEO should stop any interaction of this company with all the entities of the group EssilorLuxottica.
The recent history of mergers between listed companies shows that one of the two actors quickly exercises its prevalence in the newly constituted group: that is why the organization of the governance is primordial. For the minority shareholders, it is also a case of receiving fair and equal treatment: for the benefit of all shareholders.