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Light rises in the east

31 Mar 2015 By Dominic Elliott

Philips has earned credibility with the sale of its lighting components unit. The Dutch electronics group agreed on March 31 to sell 80.1 percent of its LED components and car lights business to an Asian technology fund for $2.8 billion. Shedding the business, known as Lumileds, is a useful plank in a wider restructuring.

The price implies a total enterprise value of $3.3 billion – way ahead of the 2.1 billion euro ($2.3 billion) valuation recently attributed by Barclays analysts, and a hefty 1.65 times last year’s sales. Osram, a German rival with a wider mix of businesses, trades on 0.8 times trailing sales, according to Starmine data. Philips could also potentially enjoy a $100 million earn-out.

Buyout firms’ hunger for corporate cast-offs helped bump up the price. Winner GO Scale Capital, a little known Chinese outfit, saw off interest from U.S. heavyweights such as Bain, CVC, KKR, Apollo and Carlyle, according to a person familiar with the situation.

It looks like GO Scale stretched every sinew: Chairman Sonny Wu has roped in his own venture capital firm GSR Ventures, plus American peer Oak Investment Partners. As VC firms, both would usually focus on much smaller deals. Property tycoon-turned-cleantech investor Zheng Jianming is also helping, as is a vehicle linked to a Chinese regional capital. Equity could be syndicated later.

Despite numerous selloffs, Philips still sprawls from X-ray machines to nose-hair trimmers. This selloff, at a better-than-expected price, is a small step in the right direction. A far bigger test looms: hiving off the remaining “lighting solutions” unit. This has revenue four times larger than Lumileds’ and will probably be floated.


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