Pioneer healthcare, consumer lifestyle and lighting company, Koninklijke Philips N.V PHG, recently inked an agreement with GO Scale Capital, an investment fund sponsored by GSR Ventures and Oak Investment Partners. The agreement pertains to the sale of 80.1% interest in Philips’ combined LED components and Automotive lighting business. In addition to the remaining 19.1% ownership stake, the company will retain 34% interest in the unit’s US operations. The acquisition is valued at approximately $3.3 billion.
Per the contract, Philips expects to obtain cash proceeds of roughly $2.8 billion excluding tax and transaction-related costs. Additionally, the company will receive a deferred contingent payment of up to $100 million for the transaction, which is scheduled to be completed in the third quarter of 2015, after fulfilling customary regulatory approvals and closing conditions.
Once GO Scale Capital completes the acquisition, the new company will continue to operate under the name Lumileds. Moreover, Lumileds will collaborate with its major customer, Philips’ Lighting Solutions business, to foster an innovation and supply partnership, thereby driving long-term growth. GO Scale Capital’s latest acquisition mirrors its efforts to leverage world class technologies and transform them into leading global companies. By investing in Lumiled’s global operation centers and the highly popular general lighting and automotive segments, the company aims to maximize its growth potential.
GO Scale Capital’s profound knowledge and expertise over LED components and automotive technology makes it a prudent choice for Lumileds. Also the company’s successful investments in the LED industry has empowered it with an easy access to state-of-art technologies and manufacturing capacity that perfectly complements Lumiled’s high-power LED manufacturing footprint and expertise.
This recent development is in sync with Philip’s previously announced repositioning strategy, which aims to create two distinct companies, one focusing on HealthTech and the other on Lighting Solutions. Divesting the majority stake in combined lighting business reflects the company’s strategy to build its Lighting Solutions business as a separate legal entity. In order to execute the separation, Philips is considering an initial public offering, among other options.
Philip’s management is highly optimistic regarding the major stake sale of their LED business. The company believes that GO Scale Capital will take Lumileds to new heights, thereby attracting new customers and obtaining economies of scale. Over the past few years, Philips has made considerable progress in the LED components business, optimizing its industrial footprint in the automotive lighting business. Once Lumileds is separated from Philips Lighting, the latter will focus exclusively on marketing lighting solutions, in which it already enjoys a leading position. Such business-pruning initiatives represent lucrative commercial opportunities for Philips in the long run.
Phillips currently has a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the sector include Universal Electronics Inc. UEIC, Whirlpool Corp. WHR and Icahn Enterprises, L.P. IEP. All three stocks hold a Zacks Rank #2 (Buy).
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