Philips said on Tuesday it has agreed to sell an 80.1 stake in its lighting components division for $2.8 billion to Go Scale Capital, a new investment fund that focuses on LEDs and electric car battery technology.
Philips said the deal values the subsidiary, which comprises an automotive light unit and Philips' "Lumileds" LED business, at $3.3 billion in cash and debt. The division reported a 2014 profit of 141 million euros on sales of 1.42 billion.
Go Scale, which has made other investments in LEDs and electric car battery technology, said it would invest in and expand the business of using LEDs in cars.
"GO Scale Capital will focus on expanding Lumileds' opportunities by investing in its global centers of operation and in the fast-growing general lighting and automotive industries," GO Scale Capital Chairman Sonny Wu said in a statement.
Go Scale Capital is funded by GSR Ventures and Oak Investment Partners.
Philips said it wanted to sell the subsidiary to be able to present itself to customers, many of whom compete with Philips, as a entity separate to the main lighting business.
Approximately 20 percent of component sales are to Philips' own main lighting business. Philips said on Tuesday it would remain a customer.
Go Scale's past investments include Boston Power, a U.S.-based manufacturer of electric vehicle batteries, and Xin Da Yang, a leading Eco-EV company in China.
It said it could offer Lumileds "complementary technologies and manufacturing capacity" that would allow the business to "pursue further growth and scale".
Philips has described the components subsidiary as a stable cash-generator,as it does most of its business selling lights, such as halogen and xenon bulbs for headlights, to automobile makers at a good margin.
The subsidiary includes the company's Philips LED manufacturing unit, which recently emerged from a reorganisation aimed at lowering costs in the face of price declines.
Philips will retain a 34 percent stake in the U.S.-based LED arm.
The deal is a prelude to an even bigger strategic move: spinning off its main lighting division, the world's largest lighting maker,into a separate company via an initial public offering of shares.
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