Philips Semi Sale Made Official
Staff Reporter -- EDN, August 4, 2006
As expected, Royal Philips Electronics has signed an agreement to sell the majority stake in its semiconductor division for more than $10 billion.
With Philips maintaining a 19.9 percent minority stake, 80.1 percent of the business unit will go to Kohlberg Kravis Roberts & Co. (KKR), Silver Lake Partners and AlpInvest Partners NV for a purchase price of $10.68 billion (8.3 billion euros), $4.37 billion (3.4 billion euros) of which makes up the purchasing price, $5.15 billion (4 billion euros) for debt and other liabilities and $1.16 billion (900 million euros) for Philips’ remaining stake.
Philips estimates it will receive cash proceeds after tax and transaction related costs of approximately $8.2 (6.4 billion euros).
Philips laid out plans for the division’s separation in June, at that time saying it would reduce its share of the division to a minority stake over the course of the remainder of the year. Philips’ first announcement of its plans to move away from its semiconductor business came in December 2005 when it announced the division would be legally separated as part of its business renewal objectives to see the division’s profitability climb to between 5 percent and 15 percent and to allow Philips to focus on its other units. The business had sales in 2005 of $5.91 billion (4.6 billion euro).
“As a stand-alone company, the semiconductors business will have every opportunity to realize its full potential and we are very pleased to have found strong partners that share our belief,” Gerard Kleisterlee, president and CEO of Royal Philips Electronics, said in a statement Thursday. “As a business partner, we will remain strongly committed to the future success of the business. As Philips, we are completing our shift away from running cyclical activities, and can fully focus on building an even stronger company in healthcare and lifestyle around the brand promise of ‘Sense and Simplicity.’”
Frans van Houten, who currently sits as CEO of Philips Semiconductors, will relinquish that role and his current position as a member of Royal Philips Electronics board to become the president and CEO of the new stand-alone semiconductors company.
“The business, with its strong R&D capabilities and broad intellectual property portfolio, will continue to focus on strengthening its performance and presence in mobile and personal, home, automotive and identification and multi market semiconductors – our four key markets. We remain entirely committed to completing our successful business renewal program,” van Houten said in the statement.
The consortium that has bought the semi business consists of U.S.-based private equity firms KKR and Silver Lake and AlpInvest, a major Dutch-based private equity investor, also purchased Agilent Technologies Inc.'s chip business late last year, Avago Technologies Ltd. in Singapore.
“We believe the Philips’ Semiconductor business is well positioned to pursue and achieve significant expansion,” Egon Durban, a managing director of Silver Lake Partners, added in the statement. “We look forward to partnering with management to continue building value through a demonstrated commitment to innovative technologies and a strong share in both established and emerging markets.”
The deal was tipped earlier this week, driving Philips’ stock up to close to its 52-week high of $35.07. The stock opened comfortably at $33.80 this morning, slightly up from Wednesday morning’s $33.56 when news first hit Wall Street.
The transaction is expected to close in Q4. No name was given for the new entity.
