Philips splitting into two; lighting business to become separate firm

Dutch diversified technology company Royal Philips NV has decided to split itself into two units by separating its lighting business into a separate listed company while retaining the health care and consumer lifestyle businesses under the existing firm, the firm said on Tuesday.

Both companies would use the Philips brand. In the past, Philips has exited several businesses, including chip-making (NXP, which was sold to PE firms and later went public) and TV (sold to Hong Kong-based TPV).

As part of the plan, while the company's healthcare unit, which includes media devices, and consumer lifestyle (appliances) operations generating €15 billion ($19 billion) in sales, will merge and operate under the present firm; the lighting operations, which has revenues of €7 billion (over $9 billion) will become a standalone company.

“I do appreciate the magnitude of the decision we are taking, but the time is right to take the next strategic step for Philips, as we continue on our transformation,” chief executive Frans van Houten said.

“Both companies will be able to make the appropriate investments to boost growth and drive profitability, ultimately generating significantly more value for our customers, employees and shareholders,” he added.

Founded in 1891, the global electronics giant will start the process of transitioning the lighting business into a separate legal structure and will also evaluate various ownership options for the division, including a spinoff and would update investors about the detailed changes in 2015.

Earlier in June, the company had separately announced to spin off part of its lighting business – its LED components and automotive lighting divisions -- and seek external investors for the same.

Currently, Philips comprises of three business lines: health care, consumer and lighting, and employs around 113,000 people across the world.

With the changes in the structure, the company is expected to achieve nearly €300 million (about $385 million) in additional cost savings till 2016 from now, it said. However, the firm will also incur additional restructuring charges of about €50 million between 2014 and 2016.

Philips, once a listed company in India, is the largest lighting products firm in the country. It is also one of the top players in the highly fragmented consumer appliances market and one of the top firms along with GE and Siemens in the medical devices segment.

It had previously sold domestic marketing rights for its consumer electronics such as televisions to Videocon Group.

(Edited by Joby Puthuparampil Johnson)

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