***UPDATE: A Philips Lighting IPO took place in May. You can read our story about it here.
Philips' previously professed intent to spin off its lighting division in order to concentrate on continued growth in its healthcare and technology enterprises took a few steps forward Monday.
A Philips release correlating with the publication of first-quarter results announced that the Netherlands-based company was “more likely” to seek an initial public offering than a private sale of its lighting business.
The prospect of such a move first emerged in 2014. The company has been weighing purchase proposals since then and will continue to do so before concluding whether an IPO is the optimal route, the release stated.
“… An IPO increasingly appears a more likely outcome, subject to further market developments and other relevant circumstances. However, the company has not yet concluded on all proposals in the private sale process and continues to assess the attractiveness of this route compared to the IPO, both in terms of value and conditions, while taking into account the best interests of Philips and its stakeholders. As such, Philips expects to update the market on conclusions and next steps shortly.”
A bullet-point summary atop the Philips release also described the lighting separation as “well on track.”
All of the private sale proposals for the lighting division have been read by Philips senior officials, CEO Frans Van Houten told journalists Monday, adding that the company still needed “to do a bit of work in order to come to a conclusion,” according to Bloomberg. Some regulatory obstacles surrounding its extensive patent portfolio still remain in the way of the IPO, Van Houten said, before going on to suggest that the listing could “happen very fast,” Bloomberg reported.
Why is Philips considering separation from Philips Lighting?
Philips Lighting did $8.3 billion in sales in 2015 and said in its release Monday that it “expected to return to positive comparable sales growth in the course of 2016.” Its LED lighting sales grew by 27 percent in the first quarter and such sales now comprise 50 percent of total lighting sales. Philips’ home business, meanwhile, saw its second straight quarter of double-digit growth. Van Houten told a Bloomberg TV anchor that the LED results gave the company “great confidence” in the state of Philips Lighting.
Philips, of course, first started as a lighting company in 1891, but has been a major conglomerate with healthcare and technology divisions for decades.
Healthcare, in particular, has become a more profitable and faster-growing venture for Van Houten and Philips, as MarketWatch.com wrote earlier today. The site called the lighting separation “part of a wider strategic overhaul to concentrate” its efforts on continued growth in the healthcare division.
Philips has seen gradual, but anticipated, decline in its traditional lighting sales, which shrunk by 15 percent last quarter when compared with the first quarter of 2015.
Back in 2014, Philips initially sought to sell its lighting division to private equity investors, but Monday’s announcement seems to indicate lacking interest in the segment, as analysts pointed out.
“The potential of an IPO would result in lower expectations about the proceeds,” a Dutch portfolio manager, Corne van Zeijl, told Bloomberg. An IPO, he said, would net a less sizable sale than what could be achieved privately.
A Philips Lighting IPO, then, can be viewed as a Plan B for the company, though the very prospect of the offering further cements its commitment to growing its other sectors.
The separation strategy, Van Houten stated in the aforementioned television interview, was rooted in having equal focus in the “health opportunity in the world” and in the “energy efficient lighting opportunity” –– something he said was “playing out” and “bodes well for the future.”
What would a Philips Lighting IPO mean for the lighting industry?
Should the spin-off occur, it would make Philips Lighting the largest standalone lighting company in the world, Reuters reported. Whether via IPO or private sale, Van Houten said he expected something to take place in the second quarter.
With a separation now imminent, what can consumers and businesses expect?
It's hard to say what the future holds, but the separation of lighting from the other Philips business units could give them a clearer focus —— both from a budgetary and leadership perspective —— on their strategy for long-term lighting solutions. Additionally, a new, lighting-focused executive team and infusion of capital could also result in a faster pace of innovation and greater agility, which is a necessity in today's rapidly-evolving industry.
For our clients wondering what impact this could have on their construction budgets and schedules, we feel confident that Philips will continue to provide competitive pricing and service after the IPO. And 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, we hope that this spells a strong future for Philips and for innovative lighting solutions.
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