Philips Expects To Raise Over $950M From Lighting Unit IPO

Koninklijke Philips N.V (NYSE:PHG) announced its plan to sell about 25% stake in its lighting division through an initial public offering (“IPO”), at a price between €18.50 and €22.50 per share. The pricing implies a market capitalization of €2.78 billion to €3.38 billion of the lighting unit.

The Dutch electronics giant is selling 25% or 37.5 million of Philips Lighting shares in the float to both individual and institutional investors.

The company said that the IPO is expected to be held on Friday, May 27, on Amsterdam's Euronext exchange and will likely raise about €694–€844 million ($786–956 million). It is also offering underwriters the chance to buy a further 3.75% of the stake, which if taken up, would enable the company to raise roughly €970 million, depending on the final price.

Philips is likely to announce the final offer price on May 26 and the unconditional trading in the shares is scheduled to start from May 31.

The IPO brings to an end a long, unproductive search by Philips for a buyer for its lighting division.

Philips’ lighting business dates back to 1891, when Frederik Philips and his son started selling carbon filament lamps. The business now covers a moribund conventional lamps operation and the fast-growing LED luminaires, systems and services unit. It generated sales of about €7.4 billion last year, making it one of the world’s largest lighting manufacturers.

Philips’ decision to spin off its iconic lighting division is rooted in the low margins and limited growth prospects of the business, especially in comparison with its more lucrative and fast-growing health technology business, which competes with Siemens AG (DE:SIEGn) and General Electric Company (NYSE:GE) .

Philips’ management is confident that Philips and Philips Lighting will be better equipped to unlock long-term growth as separately listed companies.

Late last year, Philips made a deal to offload its Lumileds business, which makes lighting with energy efficient light-emitting diodes, or LEDs. However, the deal suffered a setback after failing to secure approval from the influential Committee on Foreign Investment in the U.S. Philips is hopeful of closing a new deal for Lumileds before 2016 end.

The company is committed to restructuring its entire portfolio so that it can focus its resources on the profitable health and consumer products businesses. Philips’ healthcare business is gaining rapid momentum with rising demand for technology that enables hospitals to analyze clinical data and allow patients to monitor their health on smartphones.

The company has been facing tough times recently, with escalating taxes and restructuring charges burdening earnings. Also, challenging market conditions, coupled with a mixed outlook in China, Russia and Latin America, continue to exert pressure on this Zacks Rank #4 (Sell) stock.

Some favorably placed stocks in the same space are Jason Industries, Inc. (NASDAQ:JASN) and Research Frontiers Inc. (NASDAQ:REFR) . Both these stocks hold a Zacks Rank #2 (Buy).