Philips Scraps Lumileds Sale on U.S. Security Opposition

  • Cancelled deal with GO Scale reflects wariness on China
  • Philips says lighting separation plan won't be affected

Royal Philips NV canceled a planned $2.8 billion sale of its lighting-components unit to a consortium led by GO Scale Capital of China because of opposition from a U.S. regulator charged with vetting foreign acquisitions to protect national security.

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The U.S. government’s Committee on Foreign Investment in the United States had raised concerns about the agreement and clearance has not been granted, Amsterdam-based Philips said in a statement Friday. Philips had agreed last year to a sale of an 80.1 percent stake in the Lumileds unit that makes LED components and automotive lights.

Termination of the agreement doesn’t involve a breakup fee or hurt the planned process of separating the lighting business, which is an independent transaction, Philips said. Failure of the deal is a blow to Chief Executive Officer Frans van Houten, who is splitting off lighting to focus on consumer health care.

Shares fell as much as 3 percent and were trading down 0.6 percent at 22.815 euros at 10:57 a.m. in Amsterdam.

Wary of Chinese Technology Companies

Rejection of the deal by the Committee on Foreign Investment, or CFIUS, is further evidence that the U.S. is wary of Chinese technology companies. The sale stalled over the transfer of semiconductor technology involved in making LEDs, a device that emits light, one person familiar with the situation said last year. The authority of the committee includes acquisitions of U.S. businesses by foreign entities and Lumileds has a U.S. subsidiary based in San Jose, California that has research and development as well as manufacturing facilities.

For its part, GO Scale Chairman Sonny Wu said in a separate statement that the tech-focused private equity fund would pursue technology acquisitions. GO Scale and Philips’s “persistent” efforts to get clearance for the deal “fell short of addressing unexplained government concerns,” Wu said. He vowed to push ahead to build a leading LED lighting company that would help China to have a global LED industry.

Philips and GO Scale withdrew their application for the deal because of their inability to resolve the “unforeseen concerns” of the U.S. committee, Philips said in its statement.

Schumer Had Concerns on Micron

Acquisitions by China-linked companies of some technology-related businesses in the U.S. have hit hurdles. Senator Chuck Schumer, a New York Democrat, wrote in August to the Treasury Department, which leads CFIUS, about a bid for Micron Technology Inc. by Tsinghua Unigroup Ltd., saying he was "deeply concerned" about allowing China to gain control over components used in U.S. defense systems.

In 2012, the U.S. House Intelligence Committee urged U.S. companies to stay clear of Chinese phone equipment makers, citing concerns that the Chinese government could install malicious hardware or software in communications networks. China’s commerce minister said the U.S. view of Chinese companies as a Trojan horse reflected “a Cold War mentality.”

During the period when Philips was trying to push the GO Scale deal past U.S. regulators “the business fundamentals of Lumileds have probably deteriorated, so it will be tougher to realize the same price as before,” Hans Slob, an analyst for Rabobank, said by phone. “It’s a pretty big disappointment.”

Philips is “engaging” with other companies that have expressed interest in Lumileds, it said in the statement. KKR & Co, CVC Capital Partners and Bain Capital unsuccessfully bid for Lumileds in March.

With sales last year of about $2 billion, Lumileds is the biggest supplier of lamps to the automotive industry, equipping one out of every three cars in the world, according to the company’s website. The stand-alone company was created in 2014 to combine the LED components and automotive lighting businesses.

Philips is also exploring the sale of its lighting division, which has attracted interest from buyout firms including CVC, which has teamed up with KKR, as well as Bain Capital and Blackstone Group LP, people familiar with the matter said in November.

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