Royal Philips has announced the sale of its $3.3 billion Lumileds business to Chinese investment consortium led by Go Scale Capital had run into unexpected opposition from the Committee on Foreign Investment in the United States (CFIUS).
Philips plans to merge and spin out its Lumileds and automotive lighting businesses as one unit in June 2014. In earlier this year, Philips agreed to sell a stake of 80.1% to Go Scale Capital, an investment fund of Asian private equity firms.
Lumileds, Philips' automotive lighting business, earns sales and profit from the company's components business, LED production and LED patents. CFIUS looks closely at foreign purchases of US technology companies, and Chinese buyers have been given heightened scrutiny in recent years. Investors in the would-be buyer, Go Scale Capital, include GSR Capital, Nanchang Industrial Group and Asia Pacific Resource Development, all based in China.
Philips’ Sale of Lumileds May Be Blocked by U.S. Regulators
“Philips and GO Scale Capital will continue to engage with CFIUS and will take all reasonable steps to address its concerns, but given these, the closing of the transaction is uncertain,” Philips said.
GO Scale and Philips are working on a solution to address the concerns, and working to gain approval from the regulatory authority, Go Scale Chairman Sonny Wu said. Philips is determined to work out the deal and remains focused on closing the deal, said Philips CEO Frans van Houten in an interview.
Following the announcement, Philips shares fell 3.5%, the most since Aug. 24, and traded 3% lower at EUR 23 (US $ 25.37) as of 9:07 a.m. in Amsterdam.
For third quarter 2015, the company’s lighting business showed continual operational improvement, with the EBITA margin increasing by 40 basis points to 9.5% Year-on-Year. LED lighting comparable sales grew 24% and LED margins improved. Compared to third quarter of 2014, LED sales reached 44% of total Lighting sales. In contrast traditional lamp sales declined 15%, resulting in a comparable sales decrease of 3% YoY.