Hedge funds seek talks with Philips on performance

By Harro ten Wolde

AMSTERDAM (Reuters) - U.S. hedge funds Jana Partners LLC and D.E. Shaw Group said they plan to talk to Philips Electronics (PHG.AS) on its performance and capital structure, lifting its shares to a month high.

The two hedge funds own 1.6 percent of Philips, which is the world's biggest lighting company, a top-three hospital-equipment maker and Europe's biggest consumer electronics producer, they said in a statement issued at the weekend.

Philips shares were up 4.5 percent at 29.77 euros by 1000 GMT, adding about 1.5 billion euros ($2.2 billion) to its market value to 34 billion euros. The shares outperformed a flat DJ Stoxx 50 index.

The company is valued at 8 times expected 2007 profit and 16 times 2008 profit, according to Reuters estimates. German conglomerate Siemens (SIEGn.DE) trades at almost 17 times 2007 profit and 14 times 2008 profit. The DJ Stoxx 50 index trades at 12 times 2007 and 13 times 2008 profit.

General Electric, whose medical unit competes with Philips's medical unit trades at 17 times expected 2007 profit and 15 times next year's.

"Despite the fact that they have a relatively small combined stake of 1.6 percent the announcement by two reputable parties may raise speculations about increasing hedge fund activism," analysts at SNS Securities said in a client note, adding that they believed Philips's current strategy is very much focused on shareholder value.

Philips ended its third quarter with 5.2 billion euros in cash, which makes it an attractive target for active shareholders such as hedge funds, which often pressure for the distribution of surplus cash to shareholders.

Analysts have estimated Philips could generate around 15 billion euros of cash from disposals and operations and it could take on debt. Philips is currently debt free.

Philips owns large stakes in flat display supplier LG.Philips LCD (034220.KS) and Taiwanese contract chip maker TSMC (2330.TW).

Activist investors have targeted a number of Dutch companies in recent years, forcing some to change their strategy and others to sell unprofitable operations.

British hedge fund TCI was instrumental in promoting a bidding war for ABN AMRO AAH.AS, which ended with a group led by Royal Bank of Scotland (RBS.L) buying ABN for 70 billion euros.

In total more than 115 billion euros' ($167 billion) worth of Dutch businesses have been bought out over the past couple of years.

Philips said it was aware of the two hedge funds teaming up but declined to say whether there was any contact.

"Philips has contact with all kinds of investors on a regular basis but we don't comment on specific shareholders and the issues we discuss with them," a spokesman said.

Last month, Philips said it planned to buy U.S. lighting maker Genlyte for $2.7 billion, which would be its largest-ever acquisition.

(Editing by Quentin Bryar and Elizabeth Fullerton)