Philips has agreed to sell an 80.1 per cent stake in its lighting components division for $2.8 billion to Go Scale Capital, a technology fund that will seek to build the company's automotive LED business.
The deal announced on Tuesday is a prelude to an even bigger strategic move for Philips: spinning off its main lighting division, the world's largest lighting maker, via a stock market flotation, as the Dutch group focuses on medical technology and selected consumer electronics.
Philips said the latest deal values the subsidiary, which comprises an automotive lighting unit and the "Lumileds" LED manufacturing business, at $3.3 billion including debt. The unit made a 2014 profit of €141 million on sales of 1.42 billion.
Go Scale, which beat off competition from private equity firms to seal the deal, has made other investments in LEDs and electric car battery technology. It said it would invest in and expand the business of using LEDs in cars.
Go Scale is funded by GSR Ventures, with offices in Hong Kong, Beijing and Silicon Valley, and Oak Investment Partners.
"There were other bidders, also good bidders, perhaps with fewer connections in the industry of semiconductors and the ability to help in building out scale," Philips CEO Frans van Houten told reporters.
Reuters had reported that rival bidding groups led by private equity firms CVC-KKR and Bain Capital had been vying for Lumileds until the Asian-oriented group entered the bidding in mid-March.
Philips said it wanted to sell the subsidiary, which will be called "Lumileds," because many of its customers compete with Philips.
Approximately 20 per cent of component sales are to Philips' own main lighting business. Philips said on Tuesday it would remain a customer, another reason to sell to an investor that wants to keep the business strong and growing.
Go Scale's past investments include Boston Power, a U.S.-based manufacturer of electric vehicle batteries, and Xin Da Yang, a Eco-EV company in China.
Although use of LEDs has boomed in recent years, the industry has also suffered from overcapacity and price erosion.
Go Capital said it could offer Lumileds complementary technologies and manufacturing capacity that would allow it to pursue further growth and scale.
Philips has described the components subsidiary as a stable cash-generator, as it does most of its business selling lights, such as halogen and xenon bulbs for headlights, to automobile makers at a good margin.
Philips will retain a 34 per cent stake in the U.S.-based LED arm.