Philips swings to Q3 profits, Lumileds deal may be in jeopardy

(Reuters) — Royal Philips (NYSE:PHG) warned that the planned sale of its Lumileds division, valued at $3.3 billion, is in doubt due to U.S. national security concerns.

Reporting a swing to a 3rd-quarter net profit, the company said the disposal to a consortium of mostly Chinese investors had run into unexpected opposition from the Committee on Foreign Investment in the U.S., which reviews deals from a national security perspective when a foreign company buys a U.S. firm, has oversight of San Jose, Calif.-based Lumileds.

Most of Lumileds’ sales and profits come from its automotive lights business, but it also produces LED light components and owns a large portfolio of LED patents.

CFIUS looks closely at foreign purchases of U.S. technology companies, and Chinese buyers have been given heightened scrutiny in recent years. Investors in the would-be buyer, Go Scale Capital, include GSR Capital, Nanchang Industrial Group and Asia Pacific Resource Development, all based in China.

On a call with reporters today, CEO Frans van Houten declined to specify CFIUS’s objections.

“There’s really not much detail to give because it’s a confidential dialogue that we have with the CFIUS committee,” Van Houten said.

He said it is still possible the deal would be approved.

PHG shares, which have underperformed the Dutch benchmark AEX index by more than 10% so far this year, were down 1.5% at €23.40 in early trading today.

Philips also said it swung to a net profit of €324 million from a loss of €103 million in the same period a year earlier, on sales up 2% to €5.80 billion. In the 3rd quarter of 2014 Philips booked losses related to the temporary closure of a factory in Cleveland.

Analysts polled by Thomson Reuters had expected net profit of €191 million and sales of €5.80 billion.

Philips Healthcare posted earnings before interest, taxes & amortization of €253 million, compared with -€151 million during Q3 2014, on sales growth of 17.6% to €2.63 billion.

Philips repeated its full-year guidance for “modest” sales growth and an improved operating profit in 2015. Van Houten also forecast sales would rise between 2% and 3% in 2016.

Despite the uncertainty over Lumileds, the CEO said the disposal of the rest of Philips’ lighting business, which ranks as the world’s largest maker of lights, is still on track. The unit is seeking a stock market flotation or sale in the first half of 2016.

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