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Philips to Combine Lighting Units Into Stand-Alone Company

By Jack Keough

Philips, the huge Dutch industrial giant, says that it intends to combine its LED and automotive lighting businesses into a new stand-alone company. Philips says that it is pursuing “strategic options” to attract capital from third party investors for the new business or possibly spin off the company in an initial public offering.

Together, the two companies had sales of about $1.9 billion in 2013, about 17 percent of Philips’ entire lighting business.

The newly-combined businesses expect to be in operation as a single new company in the first half of 2015. Among other products, the new lighting business will make components such as bulbs, auto headlights and high-powered LED lamps for a number of automotive clients. Philips’s remaining lighting unit – which provides large lighting systems and services as well as light fittings and lamps for the professional and consumer markets – will be a major customer of the separate company, the Reuters news agency reported.

Philips, which has been in existence since 1891 and considered to be a pioneer in the lighting business, says it intends to remain a shareholder, customer, and possibly hold a minority stake in the company.

Philips has invested heavily over the past few years in its lumileds and automotive lighting business. The company is now seeking partners ahead of a next round of investment, said Frans van Houten, CEO of Royal Philips.

“First we will carve out the business and set it standalone, integrate the automotive and LED part, and in parallel we expect to engage with interested parties later this year,” the CEO said on a call with journalists. A number of options are being considered, including an IPO, he said.

The combination will also make it easier for Philips to incorporate its LED technology into its automotive lighting systems, the company said.

After combining its Automotive Lighting and Lumileds units, the company would have three remaining businesses segments: healthcare, consumer lifestyle and lighting, including a unit that makes conventional light bulbs.

“Both our Lumileds and automotive lighting businesses are strong players in the lighting industry and ready to pursue more growth and scale, independently of Philips Lighting,” said van Houten. “As a world-leading lighting components business, they will have increased flexibility to attract additional investors to accelerate growth,” he said in a statement released by Philips.

The company will incur $41 million in costs during the second half of this year preparing for the transition.

“Guided by our long-term strategy, we continue to actively manage our portfolio of businesses,” said van Houten. “Philips’s strategy in lighting is to intensify its focus on connected LED lighting systems and services, LED luminaires, and LED lamps for the professional and consumer markets.”

van Houten, who has had a lengthy career in turning around businesses, reportedly is focusing the company on more profitable businesses such as health-care equipment and wellness offerings. Philips has previously said that it would be focusing on these stronger growth areas and possibly selling off some units. After van Houten became CEO in 2011, Philips sold off its television business, cut more than 5,000 jobs and concentrated on growing its healthcare products. Last year, Philips sold its audio, multi-media and entertainment divisions.

The latest move by Philips seems to follow along the lines of what Siemens did when its business unit Osram Licht A.G. became a separate company last summer. Its shares are now listed on the Frankfurt and Munich Stock exchanges. Since its listing, shares in Osram have soared more than 50 percent.

An article written by Maury Wright in LEDS magazine, however, correctly points out there are significant differences. Siemens spun off its entire lighting business while Philips will keep full ownership of its general lighting business, including both LED lamps and luminaires. Philips also has significant business in the OEM area selling LED-based modules and light engines. At this time, it’s unknown where those products will fit within the two companies.

Philips will keep the business with so-called connected LED lighting systems and services, which installs complex lighting offerings for whole cities from Washington to Amsterdam, the magazine noted.

The new business, which will be headed by Lumileds chief executive Pierre-Yves Lesaicherre, will also continue to collaborate with Philips lighting on research and development.

Jack Keough was the editor of Industrial Distribution magazine for more than 26 years. He often speaks at many industry events and seminars. He can be reached at john.keough@comcast.net or keoughbiz@gmail.com

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