Royal Philips moved forward with a spin-off of its lighting business Friday, making Philips Lighting the largest standalone lighting company in the world.
An IPO of the lighting business was a known prospect for years, but disappointing first quarter results seemed to incite a swifter move toward the offering. And as far back as 2014, Philips had sought to sell its lighting division to private equity investors.
Philips CEO Frans van Houten correctly predicted to media last month that the IPO was likely to occur in the second quarter.
The lighting business was valued Thursday at $3.4 billion by the offer, and a 25 percent stake was put on the Euronext stock exchange. Shares were priced at €20, or a little over $22, ahead of the IPO. By the end of the trading day Friday, they rose by eight percent, according to multiple reports.
Philips Lighting did $8.3 billion in sales in 2015, and its LED lighting sales grew by 27 percent in the first quarter of 2016. LED sales now comprise 50 percent of the company's total sales. On the other hand, the company has seen a gradual decline in its traditional lighting sales, which shrunk by 15 percent last quarter compared to early 2015 returns.
The company, of course, began as a lighting company in 1891, but has been a major conglomerate with healthcare and technology divisions for decades. Healthcare, in particular, became a more profitable and faster-growing venture for Philips in recent years, according to MarketWatch.com, which has called the lighting separation “part of a wider strategic overhaul to concentrate” efforts on continued growth in the healthcare division.
Philips Lighting CEO Eric Rondolat, meanwhile, has said that he believes the separation will aid the company efforts in lighting innovation, specifically on the promising LED frontier.
“We want to be the lighting company for the Internet of things,” the executive said.
In a story published Friday, Fortune.com reported statements by market analysts which pointed out the difficulties facing the world's new largest lighting company and Rondolat's plans to overcome them:
“'The challenges facing Lighting are becoming clearer, but not easier,” wrote Jefferies analysts ahead of the listing.
“The dominant profit producer, lamps, is in structural decline, LED lamps are inherently more competitive” while home systems are still too small to matter, the analysts said.
CEO Rondolat said potential investors had been attracted by the “fabulous upside in our industry in general, which is brought by connected light systems and services.”
He conceded that Philips Lighting must improve margins in its professional lighting business if it is to succeed against competitors, which include not only Osram but General Electric and fast-growing newcomer Acuity Brands in the United States."
As we stated last month in our story about the potential of an IPO spin-off, we feel confident that Philips will continue to provide competitive pricing and service going forward, in case you're wondering what impact this could have on your construction budgets and schedules.
For our friends in the design community, we are hopeful that this focus on a single business will cause the Philips reputation for cutting edge new technology to endure and possibly expand.
While we can't say for certain what will happen in the months and years ahead, we hope that this spells a strong future for Philips and for innovative lighting solutions.