By Jof Enriquez,
Follow me on Twitter @jofenriq
Royal Philips has set in motion its protracted plan to focus on healthcare by announcing that it will sell its traditional lighting business through an initial public offering (IPO).
The Dutch conglomerate announced in 2014 that it planned to split into companies: the traditional lighting business that traces its roots to 1891, and a new entity called HealthTech, focusing on medical equipment and digital health services. Last year, Philips confirmed that it was planning an IPO in 2016 for its lighting business, proceeds from which will be used to jumpstart the HealthTech unit offering higher-margin products and services. Philips executives hinted during the company’s recent earnings call that it was more "likely" that they would opt for an IPO, rather than a private sale.
On Tuesday, Philips announced it will now go ahead with the IPO on the Euronext Amsterdam stock exchange; the company will sell at least 25 percent of its lighting business, which is valued by analysts to be worth as much as €5 billion ($5.8 billion), according to Reuters. The minority stake’s actual date of the sale will depend on market conditions, but the remaining 75 percent stake will be sold over a period of years, the company said.
"Today's announcement is a historic one for Philips as we aim to separate our company into two market-leading companies focused on capturing opportunities in the health technology and connected LED lighting solutions markets, respectively," said Philips CEO Frans van Houten in a statement, according to Phys.org.
Reuters cites analysts' speculation that the lighting business could merge with German rival Osram, while the remaining healthcare business could be targeted for acquisition by General Electric. Philips touted the dominant market position and presence in 180 countries of its lighting business, which posted operating profit of €331 million in 2015 on sales of €7.47 billion.
However, the healthcare business is becoming the growth-driver the company envisioned. HealthTech performed well in the first three months of the year, with all segments under the unit expanding between 5 and 9 percent. That drove Philips' total sales growth for the quarter up 3 percent to €5.5 billion.
"Our HealthTech portfolio delivered another strong quarter, with 5 percent comparable sales growth overall, despite anticipated lower royalty income," van Houten said in a statement accompanying first quarter results. "We also achieved significant operational improvements, which were partly offset by ongoing investments in high-growth businesses, such as wearable patient monitoring solutions, digital pathology and health informatics.
Philips says HealthTech components lead the market in oral healthcare, healthcare informatics, ultrasound diagnostics, cardiac care, and home healthcare, and serve a total addressable market estimated to exceed €100 billion.
The company also is exploring a sale of its profitable LED business, and van Houten told analysts recently that the company is "engaging with third parties that have expressed interest in Lumileds." The unit now makes up more than half of Philips' sales, and the company sees future growth in networked, programmable LED lights used in "Internet of Things" (IoT) devices and equipment, according to CNBC.