Philips Said to Face Headwinds on Sale of Lighting Business

  • Bain said to have dropped out of bidding for lighting division
  • KKR, CVC said to prefer joint sale of Lighting, Lumileds

Royal Philips NV may face headwinds for the sale of its lighting business as the failed divestiture of its Lumileds components division distracts potential buyers, according to people familiar with the matter.

Buyout firm Bain Capital Partners LLC has dropped out of the race for the lighting business to focus on pursuing Lumileds while KKR & Co and CVC Capital Partners, who are bidding together, would prefer that Philips sell the two units in a joint process, said the people, who asked not to be identified because talks are private.

Philips last month canceled a planned $2.8 billion sale of its Lumileds 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. The cancellation comes as the Dutch firm separately tries to sell the rest of its lighting business, which makes end products including street lamps and may fetch about 5 billion euros ($5.5 billion), the people said.

KKR and CVC, who have recently been joined by Onex Corp. in the lighting auction, are also interested in buying Lumileds, three people familiar said. Onex is only interested in lighting, two of them said. Other bidders for the lighting business include buyout firms Blackstone Group LP and Apollo Global Management LLC -- possibly with sovereign wealth funds -- as well as U.K. investment company Melrose Industries Plc, the people said.

Bain dropped out of the bidding for lighting to pursue Lumileds and due to the large price, concern about business challenges and Chinese competition, two of the people said. Philips is likely to select bidders who made it into the second round of the lighting auction this week, one of the people said.

Philips prefers to run the processes separately, Chief Executive Officer Frans van Houten stressed again last week, indicating a potential issue that may slow the process down. Philips is selling both lighting units as Van Houten is focusing the company on the global healthcare market. He’s budgeting for medical equipment to grow into a $150 billion industry on increasing demand for technology that allows hospitals to analyze clinical data, and patients to monitor health and nutrition on smartphones.

Representatives for Bain, KKR, CVC, Onex and Blackstone declined to comment. Apollo and Melrose didn’t immediately return requests for comment. Philips spokesman Steve Klink repeated that the two processes will be run separately, while declining to comment on the names of any potential bidders.

Lower Price

Philips may need to settle for as little as 2 billion euros for the Lumileds unit after the sale to the Chinese-led group collapsed and business slowed, one of the people said.

“There’s some concern that the value realization in a new deal will be somewhat lower than the original deal,” Van Houten said in an interview Jan. 26 on Bloomberg TV.

Lumileds’s earnings before interest, taxes and amortization dropped 54 percent to 71 million euros in 2015 compared to the year before.

The CEO separated Lumileds from the core activities in 2014 as he aimed to sell the unit before splitting the larger lighting and healthcare divisions -- a more complicated process. The processes still ended up being run at the same time as the Committee on Foreign Investment in the United States blocked the sale of Lumileds to the Go Scale-led consortium.

The lighting division may also be sold in an initial public offering. The CEO repeated last week that he is exploring all his options for that unit. Lumileds is solely run as a sale process.

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