Philips Nixes Deal Rebuffed By US
January 23 2016 - 3:02AM
Dow Jones News
(FROM THE WALL STREET JOURNAL 1/23/16)
By Maarten van Tartwijk
AMSTERDAM -- U.S. regulators strike again.
Royal Philips NV said Friday that it terminated the planned $2.8
billion sale of most of its lighting components and
automotive-lighting unit to a Chinese investor, after the powerful
Committee on Foreign Investment in the U.S. blocked the deal on
national-security grounds.
The move comes just weeks after U.S. Justice Department concerns
about competition scuttled another European deal: General Electric
Co.'s $3.3 billion sale of its appliance business to Sweden's
Electrolux AB. After pulling out of that deal in the face of a
Justice Department lawsuit, GE agreed to sell the business to
China's Haier Group for $5.4 billion.
Philips in March struck a deal to sell a 80% stake in its
Lumileds business to GO Scale Capital, an investment fund led by
Chinese venture-capital firm GSR Ventures. The proposed
transaction, however, raised concerns of the Committee on Foreign
Investment in the U.S., known as CFIUS, an interagency group led by
the Treasury Department that examines international transactions
for their impact on national security. Philips warned in October
that the deal could collapse.
The news comes as CFIUS has increased scrutiny of technology
deals in the U.S. involving Chinese buyers. Last year, Chinese
state-owned chip maker Tsinghua Unigroup Ltd. tried unsuccessfully
to buy Boise, Idaho-based Micron Technology Inc. for $23 billion,
with people familiar with the discussions saying talks fell through
in part because of the dim prospect of gaining U.S. regulatory
approval.
As with Netherlands-based Philips and Lumileds, the sellers of
assets targeted for CFIUS review don't need to be American. That
leaves non-U.S. companies that sell to Chinese entities at risk of
having their deals derailed or held up.
The committee has grown in prominence, in part because of
several high-profile Chinese deals it has killed or delayed. "What
we saw until a few years ago was, year in and year out, the U.K.
was the No. 1 filer" with CFIUS, said Farhad Jalinous, an attorney
with the law firm White & Case LLP. "In 2012, China surpassed
the U.K. for the first time."
Lumileds has a portfolio of more than 600 patent families for
light-emitting diodes, or LEDs, and a sizable presence in the U.S.
through manufacturing and research-and-development facilities in
San Jose, Calif. Energy-efficient LEDs, used in everything from
cars and cellphones to desktop lamps and streetlights, have a much
longer lifespan than conventional lighting sources.
Sales of LED lamps rose by 27% to $4.6 billion in 2014 and are
forecast to more than double to $11 billion by 2019, according to
research firm Euromonitor.
GO Scale Capital said it and Philips made persistent attempts to
explain the deal, but that their efforts failed to address
"unexplained government concerns."
"During the process, GO Scale Capital was very transparent about
its bona fide commercial and market-oriented interests," the group
said in a statement.
A Philips spokesman said he couldn't elaborate on the concerns
raised by CFIUS, citing the confidentiality of the talks. CFIUS
couldn't immediately be reached for comment.
Kepler Cheuvreux analyst Peter Olofsen said the CFIUS concerns
may relate to the potential transfer of technology from the U.S. to
China.
CFIUS makes recommendations to President Barack Obama on
transactions that would result in foreign control of U.S. assets,
but most of the committee's negative rulings lead to the demise of
a deal before the president weighs in.
In a rare action, Mr. Obama in 2012 ordered the sale of U.S.
wind-farm assets bought by Ralls Corp., a Chinese-controlled
company. The U.S. initially opposed Ralls's desired buyer for the
assets but reached a settlement with the company last year allowing
the sale to proceed.
Philips said it would engage with other potential buyers that
have shown an interest in Lumileds. Selling the unit is an
important step for Philips in its plan to exit its lighting
activities.
The Dutch company is currently preparing to dispose of its
remaining lighting business through a listing or sale and still
aims to sell the Lumileds business separately, a spokesman
said.
The selling price for Lumileds could be markedly lower with a
new buyer as the unit's earnings appear to have come under pressure
recently, Mr. Olofsen said.
---
Shayndi Raice in London contributed to this article.
(END) Dow Jones Newswires
January 23, 2016 02:47 ET (07:47 GMT)
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