Amsterdam, Netherlands-based Philips hailed the move as a historic day for the company, marking the end of its operations as a vertically integrated electronics company and its final emergence as a lifestyle and healthcare company.
Many will see the move as an example of the shriveled ambitions of Philips, which is on target to grow revenue at 5% to 6% this year, while many IT companies are currently growing revenue by more than 13%.
Philips is a victim of its own past success as its emergence as one of Europe’s largest conglomerates has attracted to it a conservative, risk-averse customer base. Like Siemens in Germany, it has been unloading units that operate in cyclical markets.
Philips has sold an 80.1% stake in the chip unit to a consortium of Kohlberg Kravis Roberts & Co, Silver Lake Partners, and AlpInvest Partners NV. KKR and Silverlake were part of the consortium that paid $11.3bn for SunGard Data Systems Inc in March 2005 in a deal that showed that once mutually suspicious private equity groups were prepared to band together to buy and run major companies.
Philips is retaining a 19.9% stake in this business, though this will be sold off at some stage. When taxes have been paid, Philips will receive 6.4bn euros ($8.2bn) in cash for the sale and will immediately reward shareholders for their caution by committing 4bn euros ($5.1bn) for dividend and share buybacks by the end of 2007.
Philips Semiconductors, which will retain its present management, has sales of 4.6bn euros ($5.9bn) in 2005 and operates in the areas of mobile communications, consumer electronics, digital displays, contactless payment and connectivity, and in-car entertainment and networking.
Despite cut-backs and a move to a fab-lite strategy, it employs 37,000 people. It is enjoying an upswing and second-quarter earnings before interest and depreciation rose from 27m euros ($33.8m) to 120m euros ($150.3m) on sales 12% higher at 1.2bn euros ($1.5bn).
Kleisterlee said that as a standalone company, the semiconductors business would have every opportunity to realize its full potential. Philips said it was completing its shift away from running cyclical activities, and could fully focus on building an even stronger company in healthcare and lifestyle.
Three private equity companies took part in the final auction for the unit and while discussions were held with other chip companies, none made an offer.
