Philips forced to spike Lumileds deal on U.S. security concerns

(Reuters) — Royal Philips‘s (NYSE:PHG) plan to shed its lighting businesses suffered a setback today when a $3.3 billion deal to offload the components division to Asian buyers was blocked by the U.S. on security grounds.

The agreement to sell an 80% stake in the California-based Lumileds division ran into opposition from the Committee on Foreign Investment in the U.S., Philips said in a statement.

The breakdown of the deal leaves the Dutch company under pressure as it tries to carry out several strategic operations at once. It has been trying to spin off its lighting and lighting components businesses since 2014 to focus on its core businesses of medical scanners and healthcare technology. Philips warned last year that the deal might be in jeopardy.

“I am very disappointed about this outcome as this was a very good deal for both Lumileds and the GO Scale Capital-led consortium,” CEO Frans van Houten said.

Philips is not permitted to disclose the nature of the concerns raised by the U.S. committee, which vets deals for any national security issues.

The frustrated buyer, GO Scale Capital, is made up of GSR Ventures, Oak Investment Partners, Asia Pacific Resource Development and Nanchang Industrial Group.

The exact reason why the U.S. has blocked a Dutch company from selling a lighting division to Asian investors on national security grounds is not clear.

The involvement of Chinese firms in the consortium – and the fact that LEDs (light-emitting diodes) are semiconductors, an industry the U.S. considers part of its critical infrastructure – may have played a role.

Lumileds makes lighting components used mostly in cars but also LEDs used for backlighting in consumer electronics such as smartphones and televisions. The technology used by Lumileds is considered relatively mature and Philips was surprised by the U.S. committee’s initial opposition in October.

The final rejection came “despite the extensive efforts of Philips and GO Scale Capital to mitigate” the committee’s concerns, Philips said.

Philips shares were trading 0.1% higher at 22.70 in Amsterdam Friday.

Lighting sale

Philips spokesman Steve Klink said the company was reviving talks with alternative buyers for the division, which had sales of $2 billion in 2015. The company will press ahead with separate plans to spin off its main lighting division by June.

Earlier this month, Reuters reported that the company was soliciting bids for the main Philips Lighting business at a price of roughly €5 billion.

Philips Lighting’s carve-out as an independent company within the overall group is due to be completed by Feb. 1, with a decision to be taken shortly afterwards on whether to sell it, or go for a stock market listing.

“Philips has said the breakdown of the Lumileds deal won’t impact the sale of Lighting, but it’s not helping either,” said ABN Amro analyst Marc Hesselink.

Hesselink, who rates Philips shares a “hold”, said it will probably receive a lower price for Lumileds now as GO Scale made the best offer the first time round and market conditions have worsened since the deal was announced in March 2015.

($1 = €0.9246)

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