Philips' $2.8 billion sale of its LED components business to a China-led group: A model for its lighting division sell-off?

Go to the cinema to watch a Hollywood film, and you'll first have to sit through five minutes of opening credits identifying the money men – the many producers, executive producers, and superhuman producers who funded the show.

That is what Philips' sale of its Lumileds LED components and automotive lighting business reads like at first glance.

Nine months after putting the division on the block, Philips announced this week that it has unloaded 80.1 per cent of it for around $2.8 billion, while retaining the rest.

The buyer? GO Scale Capital, of course! Or more specifically, 'a consortium led by GO Scale Capital,' Philips said in a press release.

GO Scale who?

'GO Scale Capital is a new investment fund sponsored by GSR Ventures and Oak Investment Partners,' Philips said in the release.

In case you're wondering, GSR is a Chinese investment outfit that promotes itself for 'building world class technology companies in China.' It has offices in Beijing, Hong Kong and in Silicon Valley's Palo Alto, Calif.

Greenwich, Conn.-based Oak is venture capital firm whose portfolio includes a diverse set of startups and companies such as The Huffington Post, Dick's Sporting Goods (a massive US chain), Office Depot, Petsmart, Seagate and a chain of US Asian-themed restaurants called P.F. Chang's China Bistro. Oak also has offices in Minneapolis and in Palo Alto.

HOW MANY BUYERS DOES IT TAKE TO ACQUIRE AN LED COMPANY?

More on their investments in a moment, but first: GSR and Oak are just the tip of the 'producers' list.

As Philips noted: 'The consortium partners are Asia Pacific Resource Development, Nanchang Industrial Group and GSR Capital.' (GSR Capital is a different but related company to GSR Ventures).

So there you have it. How many companies does it take to buy an LED components operation? At least five in Philips' case. It looks a bit like a venture capital version of crowdfunding in which, unlike in general crowdfunding, the moneybags get equity.

The five investors (see note below) might not be household names to Lux readers. But if you look into the activities of the investment firms, you can see striking synergies in the transaction.

For example, GSR Ventures and Oak both back Boston-Power, a Chinese-American maker of lithium ion batteries that is ambitiously ramping up production in a manner that CEO Sonny Wu describes as 'competing with Elon Musk.' Musk, of course, is the CEO of Tesla Motors, the darling of the EV industry which is also gearing up production of batteries.

Wu, who also happens to be a managing director of GSR Ventures and the chairman of GO Scale, has the $35 billion Chinese market for electric cars in his sights, as GreenTech Media noted.

ELECTRIFYING

The point: The automotive industry has been a major customer for Lumileds. With the new GO Scale ownership already ensconced via its battery packs in what many people believe to be the future of the automotive industry – electric cars – Lumileds potentially becomes part of an all-in-one source of components to car makers. Buy a battery, get three brake lights for the price of two. And so on.

'Through Lumileds’ world-leading technology in key verticals such as LED chips, LED mobile flash and automotive lighting, together with a customer base including the likes of BMW, Volkswagen and Audi, we expect to see significant growth and unparalleled inroads into new opportunities such as electric vehicles,' Wu said in the Philips press release.

As Philips stated:

  • 'The GO Scale Capital team has deep technology expertise and a track record in scaling up disruptive technologies. Current investments include Boston Power, a U.S.-based manufacturer of electric vehicle batteries, and Xin Da Yang, a leading Eco-EV company in China. The team brings deep knowledge of the LED components and automotive technology industries. Through their past investments in the LED industry, they have access to complementary technologies and manufacturing capacity. This uniquely complements Lumileds’ high-power LED manufacturing footprint and expertise, and the combination offers opportunities for the company to pursue further growth and scale.'

The sale to GO Scale Capital surprised some industry observers who had given the inside track to a joint bid by private equity firms CVC and KKR.

In fact those same two comapnies at one point were favoured to pick up Philips lighting solutions business (not to be confused with Philips' efforts to sell its OLED division).

But as of February 24, Philips said its preferred choice is to sell the group through a stock market offering. In its own words, Philips said at the time, 'It is the current intention to effectuate the separation of the Lighting business through an Initial Public Offering, but other options will continue to be reviewed.'

HOW MANY BUYERS WILL IT TAKE TO ACQUIRE A LIGHTING COMPANY?

Which raises the question: Why not cobble together a deal for lighting that mimics the Lumiled sale?

Philips is hiving off lighting because the venerable division - which makes bulbs, luminiaries and sells lighting networks and services - is struggling to make money. While the company makes impressive technological strides in moving to the future of lighting – connected, intelligent, digital lighting in which lights are key constituents in information networks and are easily controlled via sensors and remote devices that turn them on and off and change their colours and brightness – it has also had to carry the costly burden of its traditional lighting business.

So it is looking for new ownership that can be more nimble in the rapidly evolving world of internet-connected smart lighting.

Thus, how about a group of investors with synergies in the internet world? As I've said before, it's conceivable that Google and Apple could take an interest. But that's just a couple of examples. Come to think of it, maybe Dick's Sporting Goods, Petsmart, Office Depot or Chang's China Bistro might want to pioneer some smart lighting uses; we know a common investor there. Then again, there are some large Chinese digital lighting companies.

Philips has placed this blockbuster subject squarely on the agenda of its May 7 annual general meeting in Amsterdam. It will be interesting to see the names once the credits finally role.

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Note: As a 'sponsor' of the GO Scale Consortium, Oak is not directly investing in Lumileds, but is helping GO Scale raise funds, Philips explains. GSR Ventures, GO Scale's other 'sponsor', is investing through its affiliate, GSR Capital. (Note added 3 April, 9:25 a.m. BST).

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Photo is from Joke Emmerechts via Philips/Flickr

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