US may block Philips’ $3bn Lumileds sale
Philips’ $2.9bn deal to offload its lighting components business was thrown into doubt on Monday after US regulators expressed “unforeseen concerns” over the sale to a consortium of Chinese private equity investors.
The Amsterdam-based group said the sale of an 80 per cent stake in Lumileds, which makes car components and LEDs, was now “uncertain” after the Committee on Foreign Investment in the US highlighted worries over the deal.
CFIUS, which vets sensitive acquisitions of US assets by foreign companies for national security concerns, typically focuses on attempts by Chinese companies looking to buy into high-tech industries.
In March, Philips sold an 80.1 per cent stake to a consortium led by GO Scale Capital, an investment fund for GSR Ventures and Oak Investment Partners. Other members are venture capital funds Asia Pacific Resource Development and Nanchang Industrial Group.
Frans van Houten, chief executive of Philips, said he was confused why the regulator had intervened in the sale of a company that made lightbulbs. “We make simple LEDs for lamps,” said Mr van Houten. “I do not see the excitement, but that is not up to me.”
Concerns over the deal surfaced as Philips swung back to a profit for the three months to the end of September, posting net income of €324m after defeat in a patent battle dragged the company into a €103m loss last year.
Philips is in the process of spinning off the rest of its lighting business, marking an end to its 124-year link with the lighting industry, as it focuses on its more profitable healthcare and consumer divisions.
Mr van Houten said the company would make a decision on whether to sell the division or list it in an initial public offering by the start of 2016 at the latest, with the aim of completing the deal by that summer.
Sales in the group’s higher-margin healthcare business, which now makes up 45 per cent of the group’s total revenues, rose 2 per cent on a comparable basis to €2.6bn, as an improving US market helped mitigate a slowdown in China.
Mr van Houten said the heady days of double-digit growth in China were over. “China talks about the new normal,” he said. “The new normal for us means single-digit growth.”
Philips’ lighting business posted a 3 per cent drop in like-for-like sales. Mr van Houten said the planned disposal was on track to cost between €200m and €300m this year, and about the same next.
Across the group, total sales rose to €5.8bn from €5.2bn, aided by a 6 per cent increase in like-for-like sales in the consumer division, which makes everything from toothbrushes to headphones.
Mr van Houten said “mind-boggling” currency swings in emerging markets — which account for about a third of the business — knocked 1.6 percentage points off the group’s operating margin. But Philips’ margin still rose 0.7 percentage points year-on-year to 9.8 per cent thanks to internal cost-cutting and restructuring.
Shares in the group opened down nearly 3 per cent, but had rallied to €23.68 by midday.