Philips to sell Lumileds majority share for $1.5 billion

Updated 13 December 2016
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Philips to sell Lumileds majority share for $1.5 billion

THE HAGUE: Dutch electronics giant Philips has announced Monday the sale of a majority share in its Lumileds LED lighting business for $1.5 billion, after canceling the spinoff earlier this year over US regulatory concerns.
“Royal Philips today announced that it has signed an agreement to sell an 80.1-percent interest in Lumileds to certain funds managed by affiliates of (US-based) Apollo Global Management,” the Amsterdam-based company said in a statement.
Philips said it expected the deal to net the firm approximately $1.5 billion (1.41 billion euros) in cash as well as equity, adding Lumileds is valued at around $2.0 billion.
The new move comes after Philips dropped a planned $2.8-billion sale to Beijing-based GO Scale in January when neither company could convince the US Committee on Foreign Investment (CFIUS) to clear the deal.
“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,” said Philips CEO Frans van Houten.
Describing the loss of the earlier GO Scale deal as a “setback,” Van Houten told reporters: “We are confident that this time we will succeed.”
But Van Houten admitted that “given the backdrop of the CFIUS outcome we had to look for a buyer in a considerably smaller landscape of potential buyers.”
“Therefore the premium of the previous process could not be replicated this time,” he told reporters.
The transaction is expected to be completed in the first half of 2017, subject to regulatory approvals.
Van Houten however stressed that with retaining a 19.9 minority stake, Philips also had access to so-called preferred equity shares, meaning the Dutch company will receive an additional income “if Lumileds performs well.”
Jos Versteeg, an analyst at the Amsterdam-based Theodoor Gilissen private bank told AFP that “Mr Van Houten is a very good deal-maker and he made the best deal under the circumstances.”
“It’s always very difficult to make a deal when your best partner has to quit because he’s not allowed to sell,” Versteeg said.
So “at first glance it may seem disappointing, but there is a good part to it as well... if Apollo manages to squeeze some profit out of Lumileds” the price for Philips’ 19.9 percent retaining share will be higher, he said.
Durk Veenstra, market commentator with the private RTLZ economics news channel, said “the price that’s being paid for now by Apollo is (almost) half of what the Chinese were prepared to pay.”
“In short, it hurts (Philips) from all sides,” he said.
Philips in 2014 announced it would split in two, separating its health care-lifestyle arm from its historic lighting section in a move to streamline operations.
Lumileds, which makes LED and car lighting components has operations in more than 30 countries and employs at least 8,800 workers worldwide, including at its research and development and production facilities in California’s Silicon Valley.
Last year it clocked sales of around $2.0 billion.
Philips, which sold its first light bulb a few years after it was founded in 1891, has for the past dozen years focused on medical equipment, which now accounts for more than 40 percent of sales.
Founded in the southern Dutch city of Eindhoven, Philips’ health care arm employs some 70,000 people in 100 countries.
New York-based Apollo is a major global alternative investment manager with assets under management of approximately $189 billion in private equity, credit and real estate funds.
“We look forward to partnering with Philips... and Lumileds, and bringing in Apollo’s resources to support the continued growth and innovation of this industry-leading business,” Robert Seminara, senior partner at Apollo, said.


Russian arrests of foreign businessmen shocks Western investors

Updated 40 min 13 sec ago
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Russian arrests of foreign businessmen shocks Western investors

  • Baring Vostok's executives were arrested in a case brought with the help of the FSB security service
  • It is just the latest in a long line of cases in which top business people have been accused of crimes motivated by commercial or political interests

MOSCOW: The arrest in Russia of prominent US and French investors on suspicion of fraud has sent shockwaves through Western business circles and sparked fears of cutbacks in foreign investment sorely needed for economic growth.
The founder and employees of the Baring Vostok private equity firm were arrested on Friday in a case brought with the help of the FSB security service.
The arrest took place on the same day Russia hosted leading business people in the Black Sea resort of Sochi for a major economic forum which trumpeted the country’s openness to investment.
Michael Calvey, a US citizen and the founder and director of Baring Vostok, has been placed in pre-trial detention in a Moscow jail for the next two months for alleged fraud, along with five others — including Philippe Delpal, a French citizen.
They are accused of defrauding Vostochny Bank of at least 2.5 billion rubles ($37.7 million). All of them deny any wrongdoing and blame the case on a shareholder dispute.
In an opinion piece on Monday in the Vedomosti business daily, Maxim Bouev — vice-rector of Moscow’s New Economic School — wrote the case proves what investors have long known: “If you want to invest in Russia, you have to accept your risk of eventually being arrested and finding yourself in the dock.”
This is the latest in a long line of cases in which top business people have been accused of crimes motivated by commercial or political interests, but these have rarely involved foreigners.
Business figures and economists reacted strongly to investigators swooping on Baring Vostok, founded 25 years ago, which has brought in investments of more than $3 billion to Russia despite the geopolitical tensions and Western sanctions of recent years.
Arkady Volozh, the CEO of Russian Internet giant Yandex, defended Calvey in a statement, saying he “has always been a standard for the market of decency and law-abidingness.”
Other business leaders said they fear the case will deal a severe blow to an investment climate already marred by corruption and the lack of independent courts — especially given the strong-arm tactics employed.
“This gives Russia a hateful image abroad,” the president of the French-Russian chamber of commerce, Emmanuel Quidet, told AFP.
The chamber on Monday said it was “very concerned” about the arrests in a joint statement with the Association of European Businesses, a federation of multinational companies working in Russia.
The case could “severely damage the climate and attractiveness of Russia for direct investments from abroad,” it said.
The Kremlin sought to dispel those fears, with spokesman Dmitry Peskov saying Calvey’s arrest should “not affect the investment climate” in Russia.
He added he was aware of the contribution to the Russian economy made by Calvey, who has met President Vladimir Putin numerous times.
The government in early February unveiled a 340 billion euros ($385 billion) plan to achieve its economic goals and support growth that is forecast to slow this year. This will require major private investment.
“It’s an electric shock,” a source in the Association of European Businesses told AFP.
“You get the impression that business rivals are using the justice system and Russian (security) services to settle their scores. But the fact that the authorities are letting this happen sends out a very negative signal. You wonder who will be next.”
In the Novaya Gazeta independent newspaper, outspoken commentator Yulia Latynina claimed that in the context of current East-West tensions, “for security officials, business people are criminals and foreigners are spies.”