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Philips plans to spin off lighting business - FT.com

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May 3, 2016 4:01 pm

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Philips plans to spin off lighting business

Gavin Jackson in London and Jennifer Thomson in Hong Kong

©Bloomberg

Philips, the Dutch conglomerate, on Tuesday outlined plans to spin off its lighting business, saying 25 per cent of its shares would be sold in an initial public offering.

The conglomerate will aim to sell down its remaining 75 per cent stake over the next few years in order to focus on its healthcare business, according to a statement from the company.

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    Philips began making incandescent bulbs in 1891, and the IPO is part of extended efforts by the company to slim down its operations and narrow its focus to healthcare.

    “What I’ve heard is [an enterprise] valuation of up to €5.5bn [for Philips’ lighting business],” said Daniel Cunliffe, analyst with Liberum Capital.

    Among other things, the spin-off company makes light emitting diodes, which are replacing conventional bulbs in homes and offices.

    However, analysts at Jefferies said Philips’ lighting business had a “difficult path to navigate”, partly because how 85 per cent of its profit came from traditional bulbs. This market is shrinking because of the rise of LED sales.

    The Jefferies analysts also noted how Philips’ lighting business would be handed “surprisingly high” borrowings, with net debt of €950m that amounts to 1.5 times its earnings before interest, tax, depreciation and amortisation, compared with a sector average of 0.5 times.

    Philips’ lighting business recorded adjusted ebitda of €547m for 2015, on sales of €7.5bn.

    Philips said the business was expected to return to sales growth this year as the increasing contribution of LEDs would begin to outweigh declining revenue elsewhere.

    The business is due to pay out between 40 and 50 per cent of net income as a cash dividend from 2017.

    Frans van Houten, Philips’ chief executive, described the IPO announcement as “historic” for the company. “We aim to separate our company into two market-leading companies focused on capturing opportunities in the health technology and connected LED lighting solutions markets,” he added.

    Some of Philips’ divestment plans have run into trouble. It had proposed selling a different car lighting and components business to a consortium of Chinese private equity investors for $2.8bn.

    However, in January that deal involving its Lumileds unit fell apart following objections by US regulators.

    Philips had been intending to sell an 80.1 per cent stake in Lumileds to a consortium led by GO Scale Capital, a Beijing-based private equity firm.

    Last month Philips said it was still pursuing a sale and was currently “engaging with third parties”.

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