Philips to merge Lumileds and automotive lighting divisions into stand-alone subsidiary

Dutch lighting and healthcare company Philips today said it planned to merge its Lumileds LED components and automotive lighting divisions into a standalone subsidiary which could potentially be spun off.

According to the company, its lighting division would remain a key customer for the new subsidiary but it would look for third-party investors. The company also did not rule out becoming a minority shareholder in the business, which could also be floated.

The decision is being seen as another step in  the company's transition from an electronics company into a healthcare and lighting business, Reuters reported. The company pioneered the development of electric lighting 120 years ago.

Lumileds manufactures high-powered LED lights, while the automotive lighting division sells light sources to carmakers and auto parts and repair stores.

The two businesses notched up €1.4 billion in combined sales in 2013.

Reuters quoted Philips chief executive Frans van Houten as saying in a telephone briefing that as a strong standalone company it would have increased flexibility to attract investments and customers to accelerate growth and to exploit scale.

The process of merging the two divisions into one business, would be led by current Lumileds CEO Pierre-Yves Lesaicherre in the first half of 2015 and would cost Philips about €30 million in the second half of 2014.

According to van Houten, Philips and the new subsidiary would continue to collaborate on research and development.

Philips would book an initial €30-million in costs towards the merger this year. The company's shares were up 3 per cent.

Van Houten added that business would be carved out first, would be allowed to stand alone and in parallel the management would expect to engage with interested parties later this year, Bloomberg reported. All options were on the table, including an initial public offering, he said.

Van Houten, a Philips veteran known for his turnaround prowess, last year pledged to extend his efficiency drive to bolster profitability. The CEO is looking to achieve 2016 goals including a compound annual growth rate for comparable sales of 4 per cent to 6 per cent, with a profit margin of 11 per cent to 12 per cent.

Philips' move comes almost a year after Siemens spun off its entire lighting division in response to stiffening competition.

Philips said the merger would bring benefits in shared research and development and procurement. It would also broaden the customer base.