Philips picks Morgan Stanley for lighting business stake sale: sources

FRANKFURT Fri Jul 25, 2014 11:06am EDT

A Philips logo is seen at Philips headquarters, where Philips CEO Frans van Houten gave a presentation of the company's 2013 full-year results, in Amsterdam January 28, 2014.  REUTERS/Toussaint Kluiters/United Photos

A Philips logo is seen at Philips headquarters, where Philips CEO Frans van Houten gave a presentation of the company's 2013 full-year results, in Amsterdam January 28, 2014.

Credit: Reuters/Toussaint Kluiters/United Photos

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FRANKFURT (Reuters) - Philips (PHG.AS) has taken a first step towards selling a stake in a lighting components business it is currently carving out by appointing Morgan Stanley (MS.N) to handle the sale process, three people familiar with the matter said.

The Dutch company said last month that it would create the division by merging its light-emitting diodes (LEDs) business Lumileds and its automotive lighting businesses, which have combined sales of about $1.8 billion.

Philips has said the business would be better placed to compete on a standalone basis for outside customers which currently regard the Philips group as a rival.

Profit figures for the business have not been made public but one of the sources said that the margin of earnings before interest, taxes, depreciation and amortization (EBITDA) over sales was roughly 20 percent.

Peers like Cree (CREE.O) or Acuity (AYI.N) trade at 11.2 and 12.6 times their expected earnings respectively. Based on a similar multiple, the Philips unit could be valued at more than $4 billion in equity and debt.

Philips has already received interest from private equity players. The process, which is due to kick off after the summer, may or may not lead to a stake sale to financial investors, the people said, adding that all options are currently still on the table including a stock market listing.

Investors such as KKR, Advent, EQT, CVC, Cinven, Clayton Dubilier & Rice are expected to bid for the asset, the sources said.

Philips, Morgan Stanley and the potential bidders declined to comment.

Private equity investors are generally keen on buying businesses spun-off from companies in so-called "primary" deals, as they usually leave more scope for change and eventually profits.

"The rationale (of the deal) is to create a standalone capital structure and governance structure so that the newly created company can more easily seize opportunities and make investments in the future," one of the sources said, speaking on condition of anonymity as the matter is not public.

Under Chief Executive Frans van Houten, Philips is reinventing itself after its TV, audio and video businesses struggled for years to compete with low-cost Asian rivals and prompted a spate of profit warnings at the firm. It has sold off its television business, cut more than 5,000 jobs and concentrated on growing its healthcare products.

The lighting business employs 8,500 staff and makes components such as bulbs, auto headlights and high-powered LED lamps. It will count BMW (BMWG.DE), Volkswagen (VOWG_p.DE) and the latter's Audi brand among its automotive clients.

Philips's remaining lighting unit - which provides large lighting systems and services as well as light fittings and lamps for the professional and consumer markets - will be a major customer of the separate company.

(Reporting by Arno Schuetze and Anjuli Davies; Editing by Ludwig Burger and Jane Merriman)

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