Lumileds and Auto Lighting Valued at $3.3 Billion in Philips Sale to GO Scale Capital

Royal Philips announced an agreement with a consortium led by GO Scale Capital to buy an 80.1% interest in Philips’ combined Lumileds LED components and Automotive Lighting businesses, with Philips retaining the remaining 19.9% interest. The transaction values the business at an enterprise value of approximately $3.3 billion. Philips expects to receive cash proceeds, before tax and transaction related costs, of approximately $2.8 billion and a deferred contingent payment of up to $100 million. The transaction is expected to be completed in the third quarter of 2015, subject to closing conditions, including customary regulatory approvals.

Lumileds is a supplier of lighting components to the general illumination, automotive and consumer electronics markets with operations in more than 30 countries and approximately 8,300 employees worldwide. In 2014, it generated sales of approximately $2 billion and a double-digit EBITA margin, Philips said in a release.

Following the transaction, the new company will continue under the name Lumileds, led by CEO Pierre-Yves Lesaicherre. Lumileds will begin its independent life with a strong established base of lighting technology research and development, and may find a warmer welcome among competitors of Philips Lighting’s lamps and luminaires business. Philips said Lumileds will continue as a key supplier for Philips’ Lighting Solutions business, which is slated for separation from the parent company next year through an initial public offering.

“We have significantly improved the performance of the LED components business, optimized the industrial footprint in the Automotive Lighting business over the last few years, and established a strong management team and innovation pipeline,” said Frans van Houten, CEO of Royal Philips. “We are therefore convinced that together with GO Scale Capital, Lumileds can grow further, attract more customers and increase scale as a stand-alone company.”

In discussions with some lighting industry luminaries, Electrical Marketing found widespread belief that this and other moves over the past couple of years by Royal Philips and Siemens to get out of the lighting business would ultimately be good for Lumileds, Philips Lighting and Osram/Sylvania.

The rise of new competitors large and small, many with origins in semiconductors, networking and consumer technology, has placed a premium on nimbleness and speed that was hard to match from within a large conglomerate. At the same time, the outlook for profitability of lighting systems is expected to dim fairly rapidly as the retrofit market makes progress toward replacing legacy lighting technologies with longer-lived LEDs and prices for components face rapid decline.

“The electronics industry is very quick, and innovation is what drives them,” said lighting industry veteran Bill Attardi of Attardi Marketing, who covers lighting in his EnergyWatch newsletter. “Philips and Siemens may not have the capability to innovate like that on a fast-paced basis.”

The move to lighting-only companies would also free Philips Lighting and Osram/Sylvania from the weight of helping to fund other divisions within the overall Philips and Siemens structures and from the need to answer up the chain to leadership trying to balance far more than just lighting.

Under the larger conglomerates, funds generated by lighting “would go off to corporate or other divisions. Now Osram doesn’t have to answer to Siemens,” said Bill Hurd, senior vice president of lighting and controls for Shealy Electrical Wholesalers, Charlotte, N.C. “Overall, I don’t see a great impact from this on the overall market. I think those companies will be around a long time.”

GO Scale Capital is a new investment fund sponsored by GSR Ventures and Oak Investment Partners. The consortium partners are Asia Pacific Resource Development, Nanchang Industrial Group and GSR Capital.

“GO Scale Capital will focus on expanding Lumileds’ opportunities by investing in its global centers of operation and in the fast-growing general lighting and automotive industries. Through Lumileds’ world-leading technology in key verticals such as LED chips, LED mobile flash and automotive lighting, together with a customer base including the likes of BMW, Volkswagen and Audi, we expect to see significant growth and unparalleled inroads into new opportunities such as electric vehicles,” said Sonny Wu, co-founder and managing director of GSR Ventures and chairman of GO Scale Capital, who will serve as interim chairman of Lumileds.

Philips Lighting has been making other news over the past few weeks with a deal in which the City of Los Angeles will deploy its CityTouch smart street light platform across the city’s roadways. Los Angeles has conducted trials of a number of network technologies and chose to focus on Philips’ mobile wireless networks for communications.

Philips Lighting also made some headlines for the introduction of its new Hue Go luminaire, a battery-powered version of its Hue color-tunable product line that can be moved around the home, indoors and out.