By Cathy Ciccolella
Senior Editor

RANCHO CORDOVA, Calif.--On Aug. 15, VSP Vision Care took over ownership of Marchon Eyewear, after acquiring the eyewear manufacturer/distributor for $735 million. The acquisition creates a new combined entity with projected revenues of $3.3 billion this year; puts VSP’s Altair Eyewear operation under the umbrella of Marchon, now a wholly owned subsidiary of VSP; and melds VSP’s Eyefinity Internet portal with Marchon’s OfficeMate Software Solutions practice-management operation into a new “eyecare business solutions organization.”

As part of the transaction, VSP also acquired Marchon’s 50 percent ownership of Eye Designs, which designs custom interiors and merchandising systems for the optical industry.

“Bringing together the world-class products and expertise of Marchon with Altair, VSP’s for-profit eyewear company, creates an integrated organization that benefits eyecare professionals and their customers,” said Rob Lynch, VSP’s president and chief executive officer, in announcing the deal.

Al Berg, Marchon’s president and CEO, and Larry Roth, executive vice president, of Marchon, along with the Marchon global team, will continue in their current roles, with Berg reporting to Lynch. “Given the rapidly changing eyecare marketplace, this is a win for Marchon, VSP and the optical industry,” Berg commented. “This merger will help us continue our vision for growth by expanding our products, services and programs to our global customer base.”

Marchon will maintain its Melville, N.Y., headquarters as an independent entity within the VSP organization. Altair, which becomes a division of Marchon, remains in its headquarters here; Steve Wright, president of Altair, now reports to Berg.

Heading up the newly merged Eyefinity/OfficeMate operation--which in the interim will be a co-branded entity,--as president is Jim McGrann, formerly senior vice president and chief information officer of Marchon. Reporting to McGrann are Steve Baker, chief technology officer of the new entity, who continues to lead Eyefinity; and Ed Buffington, chief operating officer, who still leads Office Mate. Said McGrann, “Our existing customers and all eyecare professionals can expect to see a broad range of new technologies, enhanced support services and expanded products.”

In an exclusive interview with VM, Lynch said, VSP “will continue to remain committed to a provider network of independent private practice optometry in the U.S.” Marchon will “continue to supply and support its brands and services to its total customer base of quality retailers, including independent opticians, optometrists, ophthalmologists and chains around the world,” Berg said.

Lynch added, “Bringing together VSP and Marchon creates a more integrated eyecare delivery platform. However, it’s important to remember that each business will operate independently and remain focused on its mission. Marchon continues to support its total customer base with the best quality products, marketing, merchandising, training and services. VSP maintains its commitment to the success of private practice eyecare, and this acquisition will help doctors be more competitive.

“Providing exceptional eye exams is a central part of VSP eyecare coverage,” Lynch continued. “To ensure that VSP members can receive exams and eyewear at all VSP network locations, it is important that they are owned and operated by independent eye doctors. Opticians play a valuable role in delivering eyewear, and VSP’s integrated eyecare network includes opticians, provided they work within a doctor’s practice. VSP continues to grow its network and welcomes new applications that meet the criteria.”

Asked if VSP would consider owning a retail chain, like some other managed-vision organizations, Lynch said, “We don’t think it’s necessary that we add a chain. Our base network today has 25,000 private practice doctors; we’ve been growing by about 1,000 doctors a year, and expect that to continue.”

Internationally, Lynch noted, Marchon has an “incredible” network set up outside the U.S. Each of VSP’s businesses has a game plan, he said, to pursue global expansion, and Marchon will help VSP with that research. “Managed care, per se, doesn’t really exist outside the U.S.,” Lynch noted, “but insurance or some form of benefits to practices” is an opportunity.

Organizationally, VSP Vision Care will have four operating units: its VSP insurance business, headed by president Gary Brooks; its ophthalmic services or laboratory unit, consisting of VSP’s approximately 300 contract labs and its own and partner labs, headed by Don Oakley; the eyewear division, consisting of Marchon Eyewear and Altair; and the new “business solutions” entity.

VSP delivers eyecare benefits to 55 million members in the U.S. and Canada. The company’s total revenues in 2007 reached $2.6 billion; VSP is projecting revenues of $2.8 billion for this year.

Marchon had international sales in 2007 of more than $525 million. The company’s licensed eyewear and sunwear brands include Calvin Klein, Coach, Emilio Pucci, Fendi, Jil Sander, Karl Lagerfeld, Michael Kors, Nautica, Nike, Oscar de la Renta, Sean John and X Games. Marchon manufactures its own collections of eyewear, including lines such as Airlock and Flexon.

A VSP spokesman said Marchon’s licensors approved the transaction; the acquisition also received required regulatory approval from the California Department of Managed Care and the Connecticut Department of Insurance.  ■ --Marge Axelrad contributed to this story.