Philips announced that two out of its five lighting divisions will be combined into a standalone company, as yet unnamed, which might go public.
Sometime early next year, Lumileds and Automotive will be merged and begin operating as an independent unit within Philips, helmed by current Lumileds CEO Pierre-Yves Lesaicherre. (Philips Lumileds sponsors this site.)
The move accomplishes several things for Philips. It helps the company with its process of focusing on businesses with higher profit margins -- although Lumileds has grown by double digits in recent years, the relentless price pressure on LED components is moving LED manufacture over the long run toward the status of a commodity business.
Lumileds and automotive lighting will benefit from access to outside investors so they can grow faster. An IPO is one possibility, Philips CEO Frans van Houten said, and a cash infusion by debt investors is another.
Another advantage for the new unit will be easier access to outside customers for Lumileds' output. While others besides Philips buy Lumileds LEDs, some may be reluctant because of the competition from Philips's other lighting divisions (lamps, luminaires, and large-scale controlled lighting).
With this move Philips is following the path trod by Siemens as it spun off Osram Licht last year and mounted an IPO. The new company has performed strongly since the spinoff, and investors have reacted favorably. Analysts consider the Lumileds/Automotive combination to be stronger than Osram, according to Auto News Europe.
Siemens retained a minority stake in Osram Licht, and Philips CEO van Houten indicated that Philips may do the same if the new company goes public.
Philips is also moving much faster than Siemens did. The Osram Licht spinoff was in the works for four years, including a planned IPO in 2011 that was withdrawn. Philips plans to have the new company up and running before a year is out, taking a charge of €30 million (US$41 million) in the second half of 2014.
The combined revenue from Lumileds and Automotive was $1.9 billion last year. I haven't seen the two lines broken out separately.
— Keith Dawson , Editor-in-Chief, All LED Lighting