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Philips Cancels Sale of Multimedia Business to Funai

Royal Philips NV ended an agreement to sell its Lifestyle Entertainment unit to Funai Electric Co., dealing a blow to Chief Executive Officer Frans Van Houten’s efforts to phase out audio and video offerings such as DVD players.

A breach of contract by Funai led to the breakdown in the agreement, according to a statement from the Amsterdam-based company, which is taking legal action to recover damages. The stock dropped as much as 2.2 percent.

“We regret that we have to take this action, but we do so to protect our business and the interests of all our stakeholders,” Van Houten said. Philips said it will seek a new buyer for the audio, video, multimedia and accessories business, while continuing to run it as a standalone entity called WOOX Innovations.

Philips this year agreed to transfer the business to Funai Electric for a cash consideration of 150 million euros ($207 million) and a brand license fee. While audio and video devices have been the heritage of the 122-year-old company, Van Houten is trying to expand more profitable businesses such as LED lighting, health-care equipment and wellness offerings.

The Dutch company, which also invented the compact disc with Sony Corp., said the unit is profitable and has leading market positions in areas like home cinema sound, docking speakers and headphones. Philips had been preparing the business for transfer in the second half of the year.

Breakdown in Talks

In the final stages of the deal, Funai “refused to take the necessary steps to enable completion of the transaction and the transfer of the business,” Philips said.

“On Monday we were still negotiating the deal. The announcement today was triggered by events in the last 12 hours,” Philips spokesman Joost Akkermans said by phone, declining to specify further about the reasons for the canceled sale because of the legal action. The deal termination will have no effect on Philips’s sales and profit forecasts for the full-year, he said.

Funai’s spokespeople couldn’t immediately be reached for comment.

Philips’ consumer electronics business has shrunk over the years as customers flocked to competitors such as Sony Corp. or Apple Inc. for mobile and music devices. WOOX Innovations has headquarters in Hong Kong and sales of 1.2 billion euros.

Philips stock traded 1.8 percent lower at 25.54 euros as of 12:49 p.m. in the Dutch capital.

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