Sola International Inc.

1826–1979

Sola International Inc. designs and manufactures eyeglass lenses, primarily focusing on the plastic lens segment of the market, which the company helped develop in the 1960s. The company concentrates on four product segments: progressive lenses, photochromic lenses, coated lenses, and plastic lenses. Sola operates on a global basis, maintaining manufacturing and distribution sites in North and South America, Europe, Australia, and Asia. The company has sales operations in 27 countries. Instead of selling directly to consumers, Sola markets its lenses to retail chains, independent optometrists and opticians, and independent wholesalers.

Origins

Sola, once it reached maturity, perennially ranked as one of the world's largest lens makers, a stature it enjoyed while being affiliated with two companies of entirely different corporate backgrounds. The corporate parentage of Sola included one of the oldest companies in Britain and a unique investment company run by some of the luminaries of capitalism in the 20th century. Sola began operating in Australia, founded after nine optical technicians, working in a garage in Adelaide, helped pioneer the use of plastic lenses. The research team began their work in 1956, hoping to find a replacement for glass lenses, and the incorporation of their company, Scientific Optical Laboratories of Australia, in 1960, heralded a revolutionary development in the eyeglass lens industry. Sola grew for nearly two decades before it became the target of its first corporate parent, a glass manufacturer based in England, Pilkington PLC.

The largest glassmaker in the world, Pilkington was founded in the wake of the Industrial Revolution The company began as part of the St. Helens Crown Glass Company, a concern founded by the Pilkington and Greenall families in 1826. More than a century of quiet existence followed the founding of the company, as successive generations of patrician leadership built Pilkington into an industry leader. The company continued to operate in relative obscurity even after it joined the ranks of publicly held enterprises in 1970, but it began to attract more attention after Sir Antony Pilkington expanded the company's glass business internationally. The company's first diversifying move was the acquisition of an Australian lens maker named Sola International, a purchase made in 1979, four years after Sola had established manufacturing operations in the United States, when it opened a facility in Sunnyvale, California. The acquisition made strategic sense, representing a logical addition to one of the company's ancillary businesses that sold bits of flat glass used to make eyeglass lenses. The only problem with the acquisition of Sola was that it was a success, which encouraged management to make further acquisitions, acquisitions that were far less successful.

Ownership Change in the 1990s

AEA paid $315 million for Sola, gaining the company's manufacturing and distribution sites in North and South America, Europe, Australia, and Asia.

1963–1996

By the end of the 1980s, Pilkington was awash in debt and still reeling from a hostile takeover attempt made on the company in 1987. In late 1990, Sir Antony Pilkington announced the company would begin selling peripheral assets, which eventually led to the sale of Sola. Sola's next parent company was an intensely private investment company that bore resemblance to few other companies around the world. The company was unusual not for the way it conducted its business, but because of its shareholders, who represented the true assets of the company.

The company that acquired Sola was AEA Investors, Inc., an investment firm that began to take shape after a conversation during lunch in November 1963. Seated at the table were J. Richardson Dilworth, the financial adviser to the Rockefeller family, George Love, the chairman of Chrysler Corp. and Consolidation Coal, and Sir Siegmund Warburg, the heir of an enormously wealthy German banking family. The lunchtime talk centered on gathering together wealthy families, pooling their money, and acquiring companies for investment purposes. It took five years before their conversation materialized into a company, a company originally known as American European Associates. Not long after starting the company, the founders discovered the ideal investors were retired chief executive officers (CEOs), not wealthy families. CEOs of the largest corporations in the world possessed more than ample capital to support AEA and their management skills could be used by placing them on the board of directors of companies acquired by AEA--the attribute that set the investment company apart from others of its ilk. AEA's investors, referred to as "participants" by the company, included only the most powerful of the world's CEOs, the leaders of IBM, Exxon, General Motors, and a short list of other industry behemoths. AEA selected its participants a year or two before they retired, signing them on before they agreed to join too many other corporate boards. The strategy created an investment company Fortune described in a June 5, 1989 article as "like a small greenhouse where companies are repotted and refertilized in carefully controlled light and temperature--a place where all the gardeners have green thumbs."

In 1993, the high minds at AEA turned their attention to Pilkington's Sola, creating a Menlo Park, California, investment partnership, Sola Group Ltd., in September to complete the acquisition of the eyeglass lens manufacturing operations. AEA paid $315 million for Sola, gaining the company's manufacturing and distribution sites in North and South America, Europe, Australia, and Asia.

When AEA acquired Sola, the company was enjoying a sustained period of robust financial growth. In its business, product innovation was central to achieving financial growth because to a large extent the number of people needing glasses did not change much over time. Presenting innovative changes to consumers and convincing them to purchase the often more expensive innovation represented the chief driver of sales and profits. Such was the case with Sola's strident progress when AEA acquired the company, a growth spurt related to the introduction of progressive lenses. Developed in the late 1970s, progressive lenses were bifocal lenses without the seam that many wearers found unappealing. Sola introduced its first progressive lens, called VIP, in 1984, a lens that was ten times more profitable than a standard lens, ushering in an era of strong financial growth that stretched until the late 1990s.

While Sola was still enjoying the financial rewards engendered by VIP, the company completed an initial public offering (IPO) of stock. Sola debuted on the New York Stock Exchange in February 1995, raising $81 million from the offering. In the wake of the IPO, Sola announced two acquisitions, although company officials stressed that the acquisitions did not reflect a strategic decision to accelerate expansion by acquiring other companies. The larger of the two acquisitions was announced first, when Sola revealed in May 1996 that it had agreed to pay $107 million for the worldwide lens division of American Optical Corp. The purchase of American Optical strengthened Sola's position in progressive lens manufacture, but its greatest contribution was to Sola's presence in France and Africa. The second acquisition, announced less than a month after the American Optical deal was revealed, was the $16 million purchase of Neolens, Inc. Although much smaller than the American Optical deal, the Neolens purchase was no less important. Neolens was one of four or five companies with the technology to produce polycarbonate lenses, a type of plastic that could be fitted directly into eyeglass frames. Prior to the Neolens acquisition, Sola's products had to be finished in a lab before they could be fitted into eyeglass frames.

1996–2002

Shortly before the acquisitions were announced, Sola released its first financial figures as a publicly traded company. Sales were up 12 percent to $387.7 million and profits were up 46 percent to $33.7 million, gains that were attributed to the company's progress in expanding internationally. As the company plotted its course for the late 1990s, it was focusing expansion on markets in developing markets, targeting countries in Eastern Europe, Asia, and Africa. "We have been most active lately in China," Sola's chief executive officer, John Heine, said in a June 7, 1996 interview with the San Francisco Business Times. "And we are breaking ground next month for a factory in Guangzhou."

The years of strident financial growth came to an end in the late 1990s, forcing Sola to search for a way to invigorate its financial growth. In 1998, earnings per share totaled $2, falling to $1.30 per share in 1999, and dropping 30 percent in 2000 to 91 cents per share. The company ranked as the largest maker of eyeglass lenses in both North and South America, but its size was not enough to guarantee financial growth. "The (lens) market slowed down from the lack of innovation," a Sola executive remarked in a June 8, 2001 interview with Investor's Business Daily. "The industry was built on innovation and needs innovation to continue to grow."

Sola in the 21st Century

The sale of progressive lenses no longer provided the punch to Sola's bottom line, propelling the company's drive to find a new financial stimulant. In mid-2001, Sola unveiled new technology it had developed, designing a pair of glasses with curved lenses instead of flat lenses. Sola formed an alliance with a Parsippany, New Jersey-based frame maker, Safilo USA, to create what was dubbed "Enigma," a pair of eyeglasses whose curvature widened the wearer's field of vision by as much as 40 percent. Together, the lenses and Safilo's frames retailed for between $500 and $600, with the lenses alone selling for 50 times more than standard lenses. The lenses also were 30 times more profitable than standard lenses. Enigma lenses, like progressive lenses, improved optical performance and they were regarded as stylish, fueling optimism that the curved eyeglasses would trigger financial growth.

Sola took other steps beyond Enigma to improve its financial performance during the early 2000s. To reduce costs, the company trimmed its payroll at U.S. production plants and relocated operations to Mexico, Brazil, and China, where labor costs were much lower. The company also consolidated its manufacturing operations, reducing the number of plants it operated from 17 down to 3 by 2002.

1994–2005

The biggest event of the new decade--and a monumental event in the history of Sola--occurred at the end of 2004. In the beginning of December, a competitor, the German optical group Carl Zeiss, and a Swedish private equity firm, EQT Partners AB, announced they had reached an agreement to acquire Sola. Zeiss, comprising a group of companies operating in the optical and opto-electronic industries, conducted business in 30 countries, generating nearly $3 billion in annual revenue. EQT was an equity firm founded in 1994. The transaction was valued at $1.1 billion, 30 percent more than Sola's stock value when the deal was announced. The acquisition, perceived as part of a global trend toward consolidation in the eyeglass industry, promised profound changes for Sola, including moving its headquarters to Aalen, Germany, where Zeiss was based. The new company was expected to have 9,000 employees and slightly more than $1 billion in annual sales.

As Sola entered its 45th year of business, its pending acquisition by Zeiss promised the beginning of a new chapter in its history. In March 2005, the European Union gave its approval to the consolidation, leaving only Switzerland and Australia to approve the proposed takeover.