Philips hints at plans for divestiture of Lighting unit, Lumileds deal is near

March 19, 2015
In advance of its annual general meeting, Royal Philips has said that Philips Lighting will likely be divested via an initial public offering next year while the sale of the Lumileds LED unit appears imminent.
Royal Philips has issued a number of documents in preparation for its Annual General Meeting (AGM) of shareholders that will take place on May 7, 2015. A Shareholders Circular is especially interesting as it details the current thinking around the planned divestiture of Philips Lighting with a limited initial public offering (IPO) of shares in 2016 the most likely near-term outcome. Meanwhile, the sale of the combined Lumileds LED and automotive lighting businesses should happen in weeks and Philips is also entertaining offers for the OLED lighting business.

Philips announced in the fall of 2014 that it would divest the Philips Lighting business. Several months earlier, it had announced the plan to sell the Lumileds LED business.

While some popular media have already positioned the Philips Lighting divestiture as a potential blockbuster IPO, the Shareholder Circular uses much more restrained language. Philips said an IPO will be subject to market conditions and other business circumstances. Moreover, the company said the IPO, which might take place in the first half of 2016, would offer outside investors only a minority interest in the lighting-centric company. One or more secondary offerings over time could ultimately fully separate the companies.

Still, Philips said it will also still review alternatives to divestiture including a private sale of the organization. But it warned there is no certainty to the timing or method of divestiture. The separation seems intended to allow two healthy companies to operate in lucrative, yet unrelated sectors. Philips shareholders could remain invested in the lighting business through a robust progression of LEDs into a dominant position in the lighting market.

Lumileds and OLEDs

The Shareholder Circular provided little additional information on the planned sale of the Lumileds and automotive businesses beyond saying that progress had been made. Almost certainly, the Lumileds divestiture will have happened prior to the shareholder meeting. Indeed, a private equity sale could come at the beginning of April.

At the recent Strategies in Light Investor Forum, Dan Coyne, managing director at Canaccord Genuity, said the Lumileds divestiture would happen through a private equity investment. And throughout that week, there was talk that April 1 was the date, although Lumileds executives would not speak on the record about the sale.

In the past week, Reuters has said that a partnership between private equity firms CVC and KKR would most likely win the Lumileds sweepstakes. Bain Capital is apparently also interested. Reuters also published another report that suggested a Chinese consortium was a part of the bidding and that it might include Lattice Power.

Royal Phillips has also apparently decided to sell the OLED lighting business separately from the Philips Lighting and Lumileds divestitures, as we covered in a recent article. The OLED business believes it will fare better with owners that have a vested interest in the potential of OLEDs in lighting.