This commentary originally appeared on Real Money Pro at 07:00 on Jan. 17. Click here to learn about this dynamic market information service for active traders.
French lens maker and Italian maker of Ray-Ban and Oakley brands had been competitors. Now they'll be partners.
Wow! Instead of butting heads and price wars, these major eyewear players are merging. That's good news for shareholders of both companies. American markets were closed on Monday, Jan. 16, 2017, but the initial reactions in Europe sent Essilor up almost 13% and those of Luxottica (LUX) higher by 9.47%.
Combined market share for the new entity will weigh in around 27%. Trailing 12-month revenue totaled about 15.5 billion euros ($16.5 billion).
Both companies exhibited growth over the past six years. Elimination of redundant expenses, along with cross-selling opportunities, should prove highly accretive once the deal closes.
I spotlighted Luxottica on Real Money Pro three times over the past six months.
LUX was offered in the $48s last July. Jan. 20, 2017, expiration date $50 puts paid as much as $4.70 per share in premium back then.
Barring disaster over the next few days, sellers of the recommended options will keep profits of $470 per contract (less the initial commission) after those puts (shown below) expire this Friday.
Early last October, LUX shares were hitting new lows at around $46, while yielding an above-average 2.15%. Buying at that level is looking good today.
LUX closed last week at $52.42. The stock's implied NYSE opening would be north of $57, based on Monday's European trading. LUX peaked in 2015 at $74 per share, so the fun might just be getting started.
Just days ago, LUX was going for $50.84. I was able to collect $3.80 per share for writing the July $50 puts. A few days later, traders could have snagged more than $4.
The worst-case scenario for option sellers would have been forced purchase near LUX's lowest prints since 2013. Any short LUX January, April or July puts should simply sit tight.
If you own Luxottica outright, hold on to the shares. When the deal closes, current LUX shareholders will receive 0.461 shares of the newly formed company for each held presently.
The coming merger enhanced the firm's prospects significantly. Value Line's three to five year projected range for LUX, in its current configuration, ran from $70 to $105 even before the merger announcement.