Dynasty discount

Luxottica needs a soap-opera discount. The eyewear maker has lost its chief executive, the second in as many months. The impression that this family-controlled business has too much dynastic drama will deter potential successors. Luxottica's premium rating looks hard to restore until the governance befits a public company.

The Milan-based group was once a case study in the virtues of listed family businesses. Founder Leonardo Del Vecchio provided a stable owner with long-term vision. He outsourced management to ambitious executives, including long-running CEO Andrea Guerra. Over the last five years, the group has more than doubled shareholders' capital before dividends.
 
That assessment is now unravelling. After Guerra's abrupt exit in August, Luxottica announced a clunky dual-CEO structure, promoting Chief Financial Officer Enrico Cavatorta and beginning the search for a co-CEO. Now Cavatorta is off. His sudden departure is linked to tension with Nicoletta Zampillo, Del Vecchio's second and fourth wife, according to Italian media. Whatever the cause, the broader uncertainty around Del Vecchio's succession is destabilising.

True, Luxottica has found another executive to take Cavatorta's title - but not all of his existing responsibilities. It still needs to appoint a strong candidate to fill the remaining co-CEO role.

The rotation in senior management is problematic for a firm that has historically grown through acquisitions, and can afford more. Debt is expected to be less than 0.5 times Ebitda by the end of 2015.

At least Luxottica is performing. Earnings growth is forecast to be 8.7 per cent this year, according to Thomson Reuters Eikon. In any other company, such boardroom chaos would warrant a steep share price discount. Yet, markets still view Luxottica as almost normal. The group is trading in line with rival Essilor, at 24 times forward earnings, against an average of 25 over the last two years, down from 28 in July.

The clearest solution to the mess would be for Del Vecchio, who owns 61 per cent, to take Luxottica private. Alternatively, a merger with Essilor - explored under Guerra - would give more power to outside shareholders. In the meantime, there's scope for Luxottica's de-rating to continue.