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Royal Philips NV Chief Executive Officer Frans van Houten plans to break up the 123-year-old Dutch company, separating the lighting unit and focusing on health care equipment and consumer goods spanning shavers to air purifiers.
Philips will create a single division called HealthTech from its health care and consumer goods operations generating $19 billion in sales, the Amsterdam-based company said on Tuesday. Lighting operations will become a standalone company with $9 billion in revenue, and a new ownership structure will be considered.
Van Houten, who took the helm in 2011, is combining health care and consumer operations to tap demand for gadgets that allow consumers to control and track their health or sports activities. The CEO was likely to meet analysts and investors in London on Tuesday to outline his reasoning for breaking up one of the Netherlands' most iconic companies.
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What is Philips up to? The company will create a single division called HealthTech from its health care and consumer goods operations, generating $19 billion in annual sales The future of lighting: Lighting operations will become a standalone company with $9 billion in annual revenue and a new ownership structure will be considered Why combine health care and consumer operations? To tap demand for gadgets that allow consumers to control and track their health or sports activities A year of changes: Earlier this year, the company sold its television division and the DVD and multimedia divisions, and announced it would create a standalone company from its lumileds and automotive lighting |
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Van Houten expects the process to take 12 to 18 months and said lighting will be on its own feet in 2016
"It's a bold move," said Marc Hesselink, an analyst at ABN Amro in Amsterdam. "It shows the company's focus on one point, health care." Philips climbed as much as four per cent to euro 24.45 in the Dutch capital on Tuesday, the biggest intraday gain since June. The stock was up 3.5 per cent, valuing the company at euro 23.3 billion.
'Right time'
"I do appreciate the magnitude of the decision we are taking, but the time is right to take the next strategic step," the CEO said.
Van Houten has been focusing the company on more profitable businesses to keep up with competitors such as General Electric Co and Siemens AG. Earlier this year, the company sold its television division and the DVD and multimedia divisions - which are the company's heritage - and announced it would create a standalone company from its lumileds and automotive lighting.
Philips said it would start moving its lighting business into a separate legal structure and consider various options "for alternative ownership structures with direct access to capital markets." Van Houten expects the process to take 12 to 18 months and said lighting will be on its own feet in 2016.
The market for lighting, led by Philips, was shifting from basic demands for products to more complex systems and services, and separating the company would enable it to have a sharper focus and investment strategy, van Houten said.
Lighting competition
The decision to move lighting into a standalone company to drive growth is similar to a move by Siemens AG. The German rival last year spun off its entire lighting division as the industry gets to grips with stiffening competition. The new HealthTech company will be dominated by sales of imaging systems, while the lion's share of lighting sales will come from light sources and electronics, the company said.
Philips reiterated 2016 goals, including a compound annual growth rate for comparable sales of four per cent to six per cent, with an earnings before interest, taxes and amortisation margin of 11 per cent to 12 per cent.
