Philips Mirrors Siemens in Parting Some Light Operations

Royal Philips NV will merge some lighting units into a 1.4 billion-euro ($1.9 billion) standalone company to share research and development costs with outside investors, echoing a move by German rival Siemens AG.

Philips will combine LED-component and automotive-lighting assets and explore strategic options including an initial public offering for those operations, the company said today in a statement. The stock rose as much as 3.9 percent in Amsterdam trading, the biggest intraday gain since Dec. 16.

Chief Executive Officer Frans van Houten, a Philips veteran with a record for turning around underperforming assets, is focusing the 123-year-old company on more profitable businesses such as health-care equipment and wellness offerings. Siemens spun off its entire lighting division last year as the industry gets to grips with stiffening competition and shifts towards LEDs, which are smaller and more energy-efficient than traditional bulbs.

Having invested in both lumileds and automotive lighting over the past few years to spur growth, Philips is now seeking partners ahead of a next round of investment, van Houten said.

“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. All options are being considered, including an IPO, he said.

Sharing Costs

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.

Combining lumileds components with lighting technology for vehicles will bring benefits in shared research and development and procurement, as well as broaden the customer base, Philips said today.

“We believe we have a superior product, and we measure ourselves with the very best in the industry,” the CEO said. “We think we can compete very well against Asian competitors.”

Pierre-Yves Lesaicherre, the current CEO of the lumileds business, will head the new company, Philips said.

“From a cyclical point of view, timing seems right to divest lumileds together with automotive lighting, with which Philips will increase focus to connected LED lighting systems and services, LED luminaires and LED lamps,” ING analyst Robin van den Broek said in a research note.

Efficiency Drive

Philips predicts that the units will merge in the first half of 2015, and will book an initial 30 million euros in costs this year. Philips rose as much as 86 cents to 23.12 euros and was up 3.3 percent in the Dutch capital as of 10:23 a.m., valuing the company at 22 billion euros.

Van Houten last year pledged to extend his efficiency drive to bolster profitability. Philips is striving to achieve 2016 goals including a compound annual growth rate for comparable sales of 4 percent to 6 percent, with a profit margin of 11 percent to 12 percent

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