Philips (PHG) Lighting IPO Values Unit At Over $3 Billion

Koninklijke Philips N.V (NYSE:PHG) sold 25% of its stake in its lighting division at the rate of €20 per share, which was near the middle of its previously announced pricing range of €18.50 and €22.50 per share. The company raised about €750 million ($839 million) through the IPO, per a Bloomberg report.

This price implies a market capitalization of about €3 billion for the 125 year old lighting division.

The Dutch electronics giant sold 25% or 37.5 million of Philips Lighting shares in the float, after failing to find a buyer for the same. Shares in Philips Lighting will commence trading under the ticker “LIGHT” on Euronext Amsterdam from Friday. The IPO is one of the largest listings in Europe year to date.

Philips first revealed its intention to offload the lighting unit in Sep 2014. The IPO brings to an end the 18-month long, unproductive search by Philips for a buyer for its lighting division.

The sale marks the final step in a multi-year restructuring initiative spearheaded by CEO Frans van Houten. The IPO also ends Philips’ era as a conglomerate that made everything from lightbulbs and television sets to medical scanners and coffee machines.

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.

The Dutch conglomerate’s 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. Philips boasts an impressive record when it comes to spinning off assets. ASML Holding (AS:ASML) NV (NASDAQ:ASML) and NXP Semiconductors NV (NASDAQ:NXPI) were both spun off from Philips in the 1990s and 2000s, and now they have a greater market value than their former parent company.

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

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