Philips (PHG.AS) has agreed to sell an 80.1 percent stake in its lighting components division for $2.8 billion to Go Scale Capital, a technology fund that will seek to expand the company's automotive and LED businesses.
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 products.
Philips said the deal values the components business, which comprises an automotive lighting unit and the "Lumileds" LED manufacturing business, at $3.3 billion including debt.
ABN Amro analyst Marc Hesselink said the sale price was "considerably above market expectations". The unit made a profit of 141 million euros on sales of 1.42 billion in 2014.
Go Capital was advised by London-based Zaoui & Co, while Philips was advised by Morgan Stanley.
Philips shares, which had hit a 14-month high of 27.675 euros earlier this month, eased 0.4 percent to 26.53 euros by 0952 GMT.
Go Scale, which beat off competition from private equity firms to seal the deal, has previously invested in Boston Power, a U.S.-based manufacturer of electric vehicle batteries, and Xin Da Yang, a Eco-EV company in China.
"We expect to see significant growth and unparalleled inroads into new opportunities such as electric vehicles," Go Scale chairman Sonny Wu said.
Go Scale is funded by GSR Ventures, with offices in Hong Kong, Beijing and Silicon Valley, and by Oak Investment Partners. Consortium partners include Asia Pacific Resource Development, Nanchang Industrial Group and GSR Capital.
"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.
LEDs, or light-emitting diodes, are semiconductor devices that emit light when an electric current passes through them.
Although their use has boomed in recent years, the industry has suffered from overcapacity and price erosion. Philips has said its LED business has operating margins above 10 percent after a 2012 restructuring under Pierre-Yves Lesaicherre, but needs further investment to improve scale.
Philips said it wanted to sell the subsidiary, which will be called "Lumileds," because so many of its customers compete with Philips itself. Approximately 20 percent of component sales are to Philips' own main lighting business.