Essilor International SA said Monday it had reached a share exchange deal with Luxottica's main shareholder, Delfin, to create a combined company making both frames and lenses.
Shares jumped in both Luxottica, which is based in Milan, and Essilor, headquartered near Paris.
The new company would have combined revenues of more than 15 billion euros ($16 billion), 140,000 employees and sales in more than 150 countries. Including Monday's share gains, the overall market capitalization would exceed 50 billion euros.
Essilor said the merger is an effort to meet growing global demand for corrective lenses, sunglasses and luxury frames.
The boards of Essilor and Luxottica approved the merger in meetings Sunday. The deal still needs to go through Essilor's works council and French labor procedures.
Luxottica had long been the giant in the sector, with big acquisitions in the U.S. including Ray-Ban. It also does licensing for many fashion brands, including Prada, Chanel, Armani, Burberry and Dolce&Gabbana.
A family-run company based in the prosperous Veneto region, Luxottica was seen as a virtuous example of generational transition when the founder brought in an outside CEO, Andrea Guerra, in 2004. But after 10 years, the founder, Leonardo Del Vecchio, took back the reins.
"We will continue to invest in Italy and France. We want to be the European champion that strongly maintains its roots," Del Vecchio told an investor conference call.
Del Vecchio would become executive chairman and CEO of the new entity, called EssilorLuxottica. The chairman and CEO of Essilor, Hubert Sagnieres, will become executive vice president and deputy CEO.
Delfin would be the largest shareholder, owning between 31 percent and 38 percent of the new company.
Shares in Luxottica jumped 8.5 percent to 53.75 euros in Milan, while Essilor's rose 12 percent to 114.30 euros.
(AP)