Dutch electronics giant Philips (PHG.AS) said it would sell its stake in the Senseo coffee brand to partner Sara Lee Corp. SLE.N and pledged to keep working with the US-based firm on developing coffee machines and promoting the business worldwide.
Philips, best known to consumers for its electric toothbrushes, TVs, wake-up lights and coffee makers, is struggling to boost profits and ease the impact of slowing growth as it restructures and streamlines to compete in weak European markets flooded with lower cost Asian rivals.
Single-cup coffee brewers catering to demand for convenience and customization have gained massive popularity in recent years with rival coffee pod systems like Nestle's NESN.VX Nespresso and Kraft Foods' KFT.N Tassimo Senseo's main competition.
Philips' Thursday announcement that it would sell its 50 percent stake in the Senseo coffee brand baffled some Amsterdam-based analysts.
Some said the rationale was not immediately clear, but could have been influenced by the forthcoming IPO of Sara Lee's coffee and tea business.
Philips said it would sell the full rights of the Senseo coffee systems to Sara Lee for 170 million euros ($220.55 million) and continue to develop new Senseo coffee machine models and cooperate with Sara Lee to boost the Senseo brand globally through to 2020.
Neither firms disclosed past income from the Senseo product line or named new coffee target markets.
"Philips isn't desperate for cash and the ten-year agreement probably came up for renewal, and they decided to start over, said Petercam analyst Marcel Achterberg.
"But one thing is clear, this has been an extremely successful product in Europe with high growth over the past ten years and future growth rates will be lower than the historic ones," he added.
NO MORE LAGGARDS
Philips and Sara Lee joined up in 2001 to launch the Senseo coffee package, with the Philips coffee maker and Sara Lee fresh ground coffee pods, which soon became a 'must-have' in kitchens and offices around the Netherlands.
According to Philips, more than half of Dutch and a quarter of French and German households have a Senseo coffee maker.
The product was also launched in the United States, where it was not as popular as it has been in Europe. Philips spokesman Joost Akkermans said that market was not a focus for Senseo.
Just after Frans van Houten became Philips' new chief executive officer in April he said he would evaluate every one of Philips' 400 business units and would be taking the "blanket off laggards" to try to restore growth and boost profitability.
He has since issued two profit warnings, reset financial targets, slashed 4,500 jobs, seen several top executives replaced and tried to hive off the loss-making-TV business, in a deal which is yet to close.
"Everything is being scrutinized at Philips right now and nothing is sacred, not TVs ... not even coffee," said Petercam's Achterberg.
The firm, which is due to report fourth-quarter results on January 30, warned on January 10 that they would be lower than hoped due to weak European consumer markets and that it would have to book charges for inventory it cannot shift. ($1 = 0.7708 euros)
(Additional reporting by Kavyanjali Kaushik in Bangalore; Editing by Helen Massy-Beresford)