Philips to spin off LED lights business

The electronics group Philips is gearing up to spin off its car lights and LED business that could be valued at up to €2bn.

The Dutch group, which has been reducing its consumer electrical business to focus on its healthcare division, said it will merge its Lumileds LED components and car lighting divisions into a separate group that could eventually be sold off.

The market for LED lights has been booming as the world switches from incandescent light bulbs to alternatives. But a price war has also hit profits of the big providers and splitting off the division allows it to be more nimble.

Philips, led by chief executive Frans van Houten who has been implementing a turnaround since he took over in April 2011, said Philips will explore “strategic options” to raise money from third party investors but that it will remain a shareholder and customer of the new company.

Options include listing the new group where Philips could become a minority shareholder. Mr van Houten said: “Guided by our long-term strategy, we continue to actively manage our portfolio of businesses.”

He said the Lumileds and car business, which is yet to be named, will be able to grow better and more quickly with outside investment “independently of Philips Lighting.” The separation will also mean Philips other businesses can compete for new contracts with businesses that had been previously been competitors in the LED market.

Lumileds, which makes high-powered LED lights, and its car lights division that counts BMW and Audi as customers, have annual sales of around €1.4bn. The merging of the two divisions will complete next year and is expected to cost Philips €30m in the second half of this year. The new group, which analysts estimate is valued at up to €2bn, will be led by Lumileds current chief executive Pierre-Yves Lesaicherre and the group will continue work with Philips on new innovations and research.

Mr van Houten has cut costs and streamlined the 123-year old business and last year sold its home entertainment business to Japan’s Funai Electric, which will make the products under licence. It previously sold off the TV business. The group has three divisions: lighting, consumer electricals and healthcare with the focus for growth on its healthcare business which includes medical equipment for radiology, cardiology, oncology specialists.