May 18 (Bloomberg) -- Royal Philips Electronics NV, Europe's largest consumer electronics maker, agreed to sell $2.56 billion of Taiwan Semiconductor Manufacturing Co. shares to free up cash for takeovers and stock buybacks.

Philips will sell 240 million American depositary receipts, equivalent to 1.2 billion common shares, for $10.68 each, the company said in a statement today. Philips's stake in Taiwan Semiconductor, the world's largest customized-chip maker, will drop to 8.13 percent from 12.78 percent.

Chief Executive Officer Gerard Kleisterlee plans to sell the entire stake in the Taiwanese chipmaker by 2010 to focus on making lamps, appliances and medical scanners. Amsterdam-based Philips expects to receive net proceeds of about 1.84 billion euros from the share sale announced today.

``The choice to free up cash for medical and lighting is good and slowly but surely they've created a sizable war chest,'' said Jan van der Hout, who helps manage about 6 billion euros in assets including Philips shares at Allianz Nederland Asset Management in the Dutch town of Nieuwegein. ``Now I would like to see what they're going to buy with it.''

Shares of Philips rose 48 cents, or 1.6 percent, to 30.63 euros in Amsterdam. Hsinchu, Taiwan-based Taiwan Semiconductor rose 1.2 percent to NT$68.50 ($2.05) in Taipei.

The share sale will lead to a non-taxable book gain of 1.22 billion euros in the second quarter, Philips said. The company has sold about half of its 16.2 percent stake since it said on March 9 it planned to exit from the chipmaker.

Chip Unit Sale

Goldman Sachs Group Inc. and JPMorgan Chase & Co. will arrange the sale of TSMC shares. The transaction is expected to be completed on May 23, Philips said.

Philips may have a ``war chest of at least 15 billion euros for acquisitions or returns to shareholders'' in coming years, Jan Willem Berghuis, an analyst at Kempen who rates Philips shares ``buy,'' wrote in an investor note today.

The plan to sell the holding follows on the sale of a majority stake in its chip unit to a group of buyout firms last year, which fits Philips's strategy to move away from businesses susceptible to swings in consumer demand.

Kleisterlee, 60, in March told reporters in Sao Paulo the company may have as much as 20 billion euros available to spend on acquisitions, dividends and stock buybacks over three years. Philips is looking for acquisitions to bolster units that make medical gear, consumer goods and lighting, he said at the time.

Cash Balance

Philips is in the middle of a plan to repurchase 4 billion euros of shares, of which it had 1.59 billion euros left as of April 19, according to a filing on the company's Web site. The company had a cash balance of 5.9 billion euros at the end of the first quarter.

In March, Philips sold 887 million shares of Taiwan Semiconductor at a 3.3 percent discount, which led to a gain of 697 million euros in the first quarter. The share price in the offering announced today matched the closing price in New York yesterday.

Philips received proceeds last year of about 6.4 billion euros from selling the stake in its chip unit to a group of buyout firms including Kohlberg Kravis Roberts & Co. and Silver Lake Partners. The unit was later renamed NXP BV.

In today's statement, Philips also said it sold its remaining 2.5 percent stake in fiber-optic parts maker JDS Uniphase Corp. This will lead to a one-time loss of about 10 million euros, which will be included in the second quarter.

Philips also owns a third of LG.Philips LCD Co., the world's second-largest maker of liquid-crystal displays, and has said it plans to reduce its stake.

To contact the reporters on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net; Marcel van de Hoef in Amsterdam at mvandehoef@bloomberg.net

Last Updated: May 18, 2007 11:36 EDT