Philips Takes Haircut on Sale of Lighting Unit

The $1.5 billion deal with private equity firm Apollo is a 46% discount to a previous sale that was blocked by U.S. regulators.
Matthew HellerDecember 12, 2016
Philips Takes Haircut on Sale of Lighting Unit

Philips said Monday it had agreed to sell 80% of its LED lighting unit to private equity firm Apollo Global Management for $1.5 billion — a 46% discount to the price of a previous deal with a Chinese consortium that was blocked by U.S. regulators.

The Dutch conglomerate had warned the stake in Lumileds would fetch a lower price second-time around. A group of Chinese investors last year offered $2.8 billion but the deal was scrapped after the Committee on Foreign Investment in the United States (CFIUS) raised national security concerns.

The agreement with Apollo values Lumileds at $2 billion, compared with the $3.3 billion valuation of the earlier deal.

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“The lower price underscores the challenges European sellers face if the Chinese are forced to curb their appetite for foreign acquisitions,” The Wall Street Journal said, noting that China has been an important source of mergers and acquisitions so far this year in Europe.

“Regulatory scrutiny of Chinese offshore dealmaking and the country’s efforts to support the domestic currency could slow that M&A activity, threatening sale prices that European companies can attract by reducing competition among potential bidders,” the WSJ added.

Lumileds makes LED components and automotive-lighting products, generating about $2 billion in sales last year. It is based in the Netherlands but has a large R&D facility in San Jose, Calif., which gave CFIUS jurisdiction to weigh in on its sale.

“The committee has increasingly scrutinized global deals, including transactions in which neither buyer nor seller are American,” the WSJ noted.

Phillips has been seeking to relinquish control of Lumileds as part of its strategy of focusing almost entirely on its healthcare business. “With this transaction, we will be completing an important phase of the transformation of our portfolio and I am satisfied that in the Apollo managed funds we have found the right owner for Lumileds,” Philips CEO Frans van Houten said in a news release.

Company spokesman Steve Klink acknowledged the lower price of the Apollo deal was a disappointment.

“What can you do? We feel it was a good price under the circumstances,” he told Reuters.