According to Bloomberg reports, Chinese investor GO Scale Capital is now targeting Koninklijke Philips N.V’s PHG other lighting division, after its bid to buy Philips’ Lumileds business was thwarted by the U.S. government in January.
The private equity firm is bidding for the other lighting division of the Dutch electronics giant Philips, which could fetch roughly €5 billion ($5.4 billion), according to people close to the matter.
Earlier this year, Philips’ plans to sell off its LED business, Lumileds, to GO Scale Capital suffered a setback after failing to receive approval from the influential Committee on Foreign Investment in the U.S. (CFIUS). CFIUS – an inter-agency group led by the Treasury Department that scrutinizes international transactions for their impact on national security – expressed "certain unforeseen concerns" about the deal.
CFIUS has traditionally been sensitive about the control of high-tech companies in the U.S. passing into Chinese hands. Of late, however, the agency has become vigilant even about the transfer of technology. Some experts believe that the prospect of a Chinese company acquiring advanced technologies to make the LED lights might have made the U.S. government uneasy.
Lumileds is the biggest supplier of headlamps to the auto industry. In fact, per information from Philips' website, this unit equips one out of every three cars in the world. Thus, the regulator’s actions may have been directed toward blocking China’s progress on the auto production value chain.
However, the fact is that the lighting unit that GO Scale Capital is reportedly bidding for now makes end products like street lights, and is somewhat less politically sensitive than Lumileds.
It remains to be seen whether Philips will be willing to risk another botched deal to the Chinese investor as it seeks to divest its lighting business.
These strategic deals are critical for Philips in its plan to exit its lighting activities. The company has been attempting to get out of its relatively low-margin lighting business and focus its resources on the more profitable health and consumer products businesses.
The company has been facing tough times recently, with escalating taxes and restructuring charges burdening earnings. Also, challenging market conditions, coupled with mixed outlook in China, Russia and Latin America, continue to exert pressure on this Zacks Rank #5 (Strong Sell) stock.
Some better-ranked stocks in the same space are Control4 Corp. CTRL, GigOptix, Inc. GIG and Mistras Group, Inc. MG. All these stocks sport a Zacks Rank #1 (Strong Buy).
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