Blog Coverage Koninklijke Philips Sells Majority Stake in Lumileds to Private Equity Firm Apollo Global

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LONDON, UK / ACCESSWIRE / December 13, 2016 / Active Wall St. blog coverage looks at the headline from electronics giant Koninklijke Philips N.V. (NYSE: PHG) (“Philips”) as the Company announced on December 12, 2016, that it is selling off 80.1% stake in Lumileds to certain funds managed by Apollo Global Management, LLC (NYSE: APO) (“Apollo”). The stake sale is valued at $1.5 billion. Register with us now for your free membership and blog access at: http://www.activewallst.com/register/.

One of Philips’ competitors within the Electronic Equipment space, Eastman Kodak Co. (NYSE: KODK), reported on November 09, 2016, its financial results for the third quarter, ended September 30, 2016. AWS will be initiating a research report on Eastman Kodak in the coming days.

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Terms of the stake sale

Under the agreement, certain funds managed by affiliates of Apollo will acquire 80.1% of Lumileds equity. Philips will continue to retain the balance 19.9% of the stake in Lumileds for a period of at least three years.

The enterprise value of Lumileds is $2 billion including debt. Apollo will pay Philips a sum of $1.5 billion in cash as well as in participating preferred equity. The cash is calculated before tax and all deal related expenses. Under the participating preferred equity condition, Philips will receive participating preferred equity, wherein it will be entitled to an incremental increase in value of the shares in the future. This is conditional to Apollo achieving certain pre-agreed financial milestones.

The deal is expected to close in the first half of 2017 and is subject to statutory approvals and completion of closing conditions.

Commenting on the deal, Frans van Houten, CEO of Royal Philips said:

“With this transaction, we will be completing an important phase of the transformation of our portfolio and I am satisfied that in the Apollo managed funds we have found the right owner for Lumileds.”

Robert Seminara, Senior Partner at Apollo added:

“We look forward to partnering with Philips and the outstanding management team and employee base at Lumileds, and bringing in Apollo’s resources to support the continued growth and innovation of this industry-leading business.”

Lumileds is a LED component and auto-lighting business of Philips with presence in more than 30 countries and about 9,000 employees worldwide. Lumileds’ sales for 2015 was $2 billion.

Apollo is a contrarian, value-oriented investor in private equity, credit, and real estate, with significant distressed expertize. The investment company manages funds on behalf of some of the world’s most prominent pension and endowment funds as well as other institutional and individual investors. It has assets under management of approximately $189 billion as on September 30, 2016.

Backdrop of the deal

In June 2014, the Lumileds (LED components) and automotive lighting businesses were combined into a stand-alone company within the Philips Group. In March 2015, Philips announced that it was selling 80.01% of its stake in Lumileds to a consortium led by GO Scale Capital for approximately USD 2.8 billion and a deferred contingent payment of up to USD 100 million. Go Scale Capital, is a fund led by venture-capital firms GSR Ventures and Oak Investment Partners that primarily invests in technology startups in China, with a focus on semiconductor companies, wireless firms, and green technology. However, the deal fell through when the Committee on Foreign Investment in the US (CFIUS) last year raised unspecified objections on the deal.
CIFUS is an inter-agency committee of the US Government that reviews the national security implications of foreign investments in US companies or operations. CFIUS’ reason for objection was not disclosed although LED technology owned by Lumileds would not have any major national security implications.

Following the CFIUS objections, Philips backed out of the deal in January 2016 and since then has been looking for alternative investors for Lumileds stake. CFIUS’s objections reduced the number of offers even further. Philips can rest assured that though Apollo’s offer is considerably lesser than that of Go Scale, CFIUS is unlikely to object, as the fund is US based.

Philips has been looking making efforts to restructure its operations to focus on areas of growth and core capabilities. The current deal is also a part of this exercise. Earlier in May 2015, Philips had announced the separation of its Lighting business to establish it as a separate and independent company. The Philips Lighting listed as an independent company following an IPO in May 2016.

Stock Performance

Philips’ share price finished yesterday’s trading session at $29.85, slightly advancing 0.40%. A total volume of 872.88 thousand shares exchanged hands. The stock has advanced 19.40% and 19.40% in the last six months and past twelve months, respectively. Furthermore, since the start of the year, shares of the company have surged 21.37%. The stock is trading at a PE ratio of 68.94 and has a dividend yield of 3.02%.

On the same day, Apollo’s stock closed the day’s session with a marginal drop of 3.26% at $20.18. A volume of 1.02 million shares exchanged hands during the day. Apollo’s stock has advanced 7.67% in the last month, 35.39% in the last six months, and 44.07% in the last one year. The stock has a PE ratio of 16.17 and a dividend yield of 6.94%.

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