Maarten van TartwijkThe Wall Street JournalCANCEL
Updated March 31, 2015 7:49 a.m. ET
AMSTERDAM—Koninklijke Philips NV plans to sell a majority stake in its lighting components and automotive-lighting activities to an investment consortium in a cash deal that values the business at about $3.3 billion.
The sale marks the first step in a two-part plan by the Dutch electronics group to exit the lighting business to focus on medical equipment and consumer-lifestyle products.
The plan echoes the decision by Siemens AG, the German engineering group, which in 2013 listed Osram Licht AG, its lighting business, having previously separated it from the main group. Philips Lighting and Osram compete with the lighting division of General Electric Co.
Go Scale Capital, a fund led by venture-capital firms GSR Ventures and Oak Investment Partners, plans to acquire an 80.1% stake in the combined Philips business, with Philips retaining the remaining stake. Philips pockets around $2.8 billion in cash which will partly be used to repay debt, a Philips spokesman said.
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Philips said earlier this month it also plans to spin off the bulk of its lighting business, which supplies light-emitting diode lamps and lighting systems, through an initial public offering next year. Once that happens, the group would have two main businesses, one supplying health-care equipment, such as hospital scanners, and the other, consumer gadgets such as coffee machines and shavers.
Philips had decided to sell the lumileds, as LED components are known, and automotive business separately because it was no longer deemed a strategic fit with the rest of the lighting operations. Management is trying to shift them toward services, such as supplying lighting systems for cities and sporting venues, from manufacturing.
The business Go Scale Capital is taking over makes LED chips used in televisions and smartphones as well as traffic lights and lights for cars. It reported $2 billion in sales in 2014, or nearly a third of Philips’ total lighting revenue of €6.87 billion.
Philips’s decision to jettison its lighting activities follows several years of stagnating sales even though demand for LED lamps is rising as countries phase out less energy-efficient incandescent light bulbs. Competition has proved fierce in the sector while the longer lifespan of LED lamps has changed the industry’s dynamics.
Sonny Wu, co-founder of GSR Ventures and chairman of GO Scale Capital, said the lumileds and automotive lighting business still offers “significant growth and unparalleled inroads into new opportunities such as electric vehicles.”
Mr. Wu’s venture-capital firm primarily invests in technology startups in China, with a focus on semiconductor companies, wireless firms and green technology. The Go Scale Capital fund recently invested in Boston Power Inc., a U.S…based manufacturer of batteries for electric vehicles.
Analysts said Philips fetched a good price for the business, which could bode well for the IPO of the entire lighting arm next year.
“The deal illustrates that Philips can maximize value while still securing a robust future for its divested lighting activities,” said Robin van den Broek of ING, a Dutch bank.
Philips shareholders will vote on the proposed separation of the remaining lighting activities at their annual meeting slated for May 7.
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