By Inti Landauro and Manuela Mesco

PARIS--French optical-lens maker Essilor International SA and Italian frames maker Luxottica Group SpA said Monday they have agreed to merge, creating an eyewear-industry giant with a market value of around EUR46.3 billion ($49.16 billion).

The plan to create a combined company making both lenses and spectacles may alleviate concern that growing competition was increasingly pitting the two companies against each other. Essilor was moving into frames while Luxottica, which makes Ray-Banand Oakley branded frames and has retail operations, is expanding its lens manufacturing.

Shares in both companies rose sharply in early trading Monday, with Essilor gaining 16% and Luxottica up 12%.

"Never, since lenses were created centuries ago, have the same people made the lenses and the frames," said Essilor Chairman and Chief Executive Hubert Sagnières

Italian holding company Delfin--which is Luxottica's main shareholder and will also be the leading shareholder of the new entity--will exchange its shares for newly issued shares in the French company.

Delfin, which is owned by Luxottica's founder and executive chairman, Leonardo Del Vecchio, will swap its 62% Luxottica stake for 38% in the new Paris-listed company, to be named EssilorLuxottica. Essilor will then offer minority stakeholders 0.461 of EssilorLuxottica's shares for each of Luxottica's, with the aim of withdrawing the shares from the Milan stock market.At the end of the exchange offer, Delfin would own a 31% stake in the merged company, which will be based in Essilor's main offices in Charenton, just outside Paris.

According to Euromonitor, Luxottica has a global market share of 14% in eyewear, while Essilor has 13%, putting them far ahead of other competitors, such as Johnson & Johnson Inc. and Safilo Group SpA, both with market shares below 4%.

Late last year, Exane BNP Paribas' analyst Luca Solca said the profit pool for both could shrink because of harsher price competition for frames and lenses.

Luxottica's Mr. Del Vecchio will become CEO and executive chairman of the new entity, while Essilor's 61-year-old Mr. Sagnières will be deputy CEO and vice executive chairman, giving him equal power to Mr. Del Vecchio.

The 16-member board of the merged company will be evenly divided between the two current businesses.

The merged companies will have a combined annual revenue of EUR15 billion and earnings before interest, taxes, depreciation and amortization of EUR3.5 billion. Both companies expect annual synergies worth between EUR400 million and EUR600 million.

Mr. Del Vecchio, 81 years old, has been struggling to set up a long-term management structure at Luxottica.

After long-term CEO Andrea Guerra left the company in 2014 over clashes with Mr. Del Vecchio, the founder took over executive powers. But the decision nearly sparked a board revolt and drove out another trusted lieutenant. It also pushed the stock price down.

Investors and analysts became concerned that Mr. Del Vecchio's family and the company's succession issues could undermine the independence of management. Mr. Del Vecchio took a step back and created a co-CEO structure to strengthen top managers' independence.

But after one of the two co-CEOs left last year, Mr. Del Vecchio decided to take back executive powersas he wanted more direct control over the markets division, which entails strategies in emerging markets, digital development and e-commerce.

Luxottica recently said that the succession issue and concerns on family interests are no longer on the table, as Mr. Del Vecchio had equally distributed stakes of the holding company controlling the eyewear firm to his sons, who have no seats in the board or roles in the company.

Mediobanca was the sole adviser for Delfin, while Citigroup Global Markets Ltd. and Rothschild & Co. advised for Essilor.

The merger has been in the works for years, according to a person close to the matter.

Write to Inti Landauro at inti.landauro@wsj.com and Manuela Mesco at manuela.mesco@wsj.com

(END) Dow Jones Newswires

January 16, 2017 07:06 ET (12:06 GMT)

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