Why the Oakley Buyout Was No Surprise
By Graham Summers
June 27, 2007
Last Thursday, the Italian luxury glasses manufacturer Luxottica purchased sports sunglasses maker Oakley (OO) for $2.1 billion, or $29.30 a share. This represented a 17% premium to OO's share price at the time.
The deal probably came as a bit of a surprise to most investors...
Luxottica primarily focuses on prescription and luxury designer glasses. The Italian glasses giant owns Ray-Ban and licenses Bvlgari, Chanel, Dolce & Gabbana, Prada, Versace, and others. For it to break into sports glasses marks a significant leap from its core business.
However, for those of us who track SEC filings, this deal has been a long time coming.
Oakley's founder, Jim Jannard, was and remains the largest shareholder of Oakley stock. And in the years preceding this deal, Jannard added substantially to his holdings.
In 2004, Jannard bought $2 million worth of stock. In 2005, it was $16 million. And in the first half of 2006, he bought $4.6 million. Altogether, Jannard bought more than $23 million worth of stock... bringing his personal holdings to 63% of the company's outstanding shares.
Seeing this, I recommended Oakley to subscribers of Inside Strategist in May 2006. At the time, Oakley shares were trading around $17. In Oakley, we saw the dominant brand in its field – Oakley sunglasses were sold in more than 100 countries and accounted for over 48% of the company's annual sales – that was expanding into prescription eyewear: a $16 billion market.
Oakley started designing and selling prescription eyewear in 1998. However, it wasn't until 2006 that the company really began to focus on expanding this product line. To that end, the company began making several acquisitions... acquisitions that coincided with some rather sizable purchases of Oakley's stock by Jim Jannard.
The first was Oakley's February 8, 2006, acquisition of the private company Oliver Peoples. Through the acquisition, Oakley acquired three high-end brand names: Oliver Peoples, Mosley Tribes, and Paul Smith.
Two weeks after the announcement of the acquisitions, Jim Jannard bought $2.2 million worth of stock.
Oakley then further expanded its footing in the high-end eyewear market with its March 14, 2006 purchase of Optical Shop of Aspen (OSA). You can't get more high-end than OSA. The chain operates 14 luxury outlets in the United States, selling glasses by Chanel, Dolce & Gabbana, Oliver Peoples, and Chrome Hearts. The last line in particular is worth noting, since its glasses sell for $350 to a whopping $6,000.
One week after Oakley announced the acquisition, Jim Jannard bought another $1.6 million worth of Oakley stock.
And then came the mac daddy of SEC filings, SEC Form 8-K Item 5.02: the Executive Severance Plan amendment. In Oakley's case, this 8-K detailed how Oakley's officers would be compensated, should the company experience a "change in control," otherwise known as a buyout.
Of course, you're not necessarily going to see a buyout every time a company amends its executive severance plans. But between Oakley's shift to prescription eyewear, Jim Jananrd's purchases, and the amended severance package, I was willing to bank that we'd see a potential buyout offer come in soon.
Last Thursday, the buyout offer came from Luxottica, the world's largest glasses retailer.
Inside Strategist subscribers are now up 60% on Oakley's stock. And by the time the deal closes (second half of 2007), we'll have made 65%.
It pays to follow the founders.
Good trading,
Graham
