Putting the lighting business in a separate company is part of a
wider strategy that began with Philips' move out of less profitable
consumer electronics and into fast-growing healthcare markets,
largely in emerging Asian markets.
The decision to split the company in two marks a definitive break
from its origins in the southern Dutch town of Eindhoven, where
Gerard Philips and his father Frederick founded one of the earliest
makers of incandescent light bulbs in 1891.
Philips, which invented the audio cassette and compact disc, grew
into a world-leading electronics company by the 1960s but it has
always been ruthless about moving out of less profitable businesses,
such as audio and video, vinyl records and TVs.
Unveiling the split on Tuesday, Philips Chief Executive Frans Van
Houten said it was not clear whether the lighting business would be
sold off to investors, or listed on the stock exchange, but the move
would bring better returns for investors.
"I do appreciate the magnitude of the decision we are taking, but
the time is right to take the next strategic step for Philips," Van
"Great companies need to reinvent themselves, we can do that, we can
stay relevant, we can grow and we can stay successful. It takes
courage but it's a path we've been preparing for carefully."
Van Houten declined to comment on whether either new company could
become a takeover target: "Our decision is not driven by fear of
what other companies may do."
The Philips split will take up to 18 months and would make it easier
for both companies to raise money and invest, he said.
The new structure should save 100 million euros ($128.5 million)
next year and 200 million euros in 2016. It expects restructuring
charges of 50 million euros from 2014 to 2016.
The Philips move is another example of companies overhauling
long-standing structures. Last week, Germany's Bayer said it was
spinning off its plastics business to focus on its more profitable
German engineering giant Siemens spun off its light bulb maker and
Philips competitor Osram last year.
Philips shares, which have underperformed the broader market and are
down 9 percent this year, rose 2.4 percent to 24.07 euros in trading
Splitting the company would be good for valuations, said Rabobank
analyst Hans Slob: "It will eliminate the conglomerate discount, I
always used a 5 percent discount for the sum of the parts
[to top of second column]
Philips said in July it would combine its light-emitting diode (LED)
and car lights division in a stand-alone firm to focus on an LED
boom as the world switches from incandescent bulbs to more efficient
and durable lights.
"The entire dynamics of the lighting market are changing," Van
Houten said on Tuesday. "Value is moving toward systems and
services," including, for example, managing cities' and companies'
complete lighting systems.
But a price war for LED bulbs is hurting profits, leaving Philips
and Osram scrambling to develop new technology and seek out new
Philips has a history of building up and spinning off successful
businesses, among them chip equipment maker ASML, which is now
larger than Philips, and Polygram, the music label and film company
that was merged with Universal.
Philips said its latest move would create two market-leading
companies, HealthTech, with sales of 15 billion euros, and Lighting,
with both companies using the Philips brand.
Philips said it would move the 7-billion euro lighting business into
a separate legal structure and consider various options for
"alternative ownership structures with direct access to capital
In a revised outlook, Philips said adjusted earnings before
interest, taxes, depreciation, and amortization (EBITA) in the
second half of 2014 were expected to be slightly lower than the same
period a year earlier.
In the healthcare business, core profit in the second half of 2014
is also now expected to be lower than the reported core profit in
the second half of 2013.
(Editing by David Clarke)
[© 2014 Thomson Reuters. All rights
2014 Reuters. All rights reserved. This material may not be
published, broadcast, rewritten or redistributed.