Philips Electronics has agreed to buy U.S. lighting maker Genlyte for $2.7 billion in a deal that will make Philips the top lighting company in North America.
Philips, the world's biggest lighting maker, a top-three hospital equipment maker and Europe's biggest consumer electronics producer, said it would launch a cash offer of $95.50 per Genlyte share within five business days.
Philips is paying a premium of 52 percent to Genlyte's closing price of $62.67 on Friday. Genlyte's board is backing the bid.
The move strengthens Philips' hand against rival General Electric on GE's home turf. GE said last month it would restructure its lighting business, in which it has already sold plants and cut thousands of jobs, hurt by a steep decline in sales of the traditional incandescent household light bulb.
GE said it had invested $200 million in the last four years on energy-efficient lighting and would close further plants, impacting another 1,425 jobs at its lighting division.
Philips shares were down 0.3 percent to 28.36 euros. Earlier, they hit a one-week high at 29.10 euros.
Genlyte makes a perfect strategic fit for Philips, allowing the Dutch company to push into the U.S. energy-saving lighting market, said Rabo Securities analyst Frits de Vries.
Philips is paying 1.68 times Genlyte's forecast sales, said SNS Securities analyst Victor Bareno. This compares with a multiple of 1.5 for Belgian lamp and light fitting maker Partners in Lighting International, which Philips bought in February.
"Philips is paying a full price. We believe this price can be justified given Genlyte's higher margins," Rabo's de Vries said.
Genlyte, the second-ranked North American lighting fixtures maker, had an earnings before interest, tax and amortization (EBITA) margin of 14.9 percent in the 12-month period to September 2007.
Philips, whose lighting business contributes about a fifth of the group's total sales, has been fast to push into new technologies, particularly energy-saving lighting.
"People are a lot more interested in green buildings," Genlyte Chief Executive Larry Powers said on a conference call. "It's starting to catch on, and hopefully it's going to start turning into some nice orders over time."
Philips bought U.S. energy-efficient LED maker Color Kinetics in June for 592 million euros.
Synergies are Strong
Philips expects total synergies of about 60 million euros -- split about evenly between sales and costs -- from the Genlyte deal, management told analysts on a conference call.
They said the estimates were conservative.
Philips said the acquisition would broaden its client base.
"This deal deepens our contacts to end users ... helping us speed up the market rollout of more energy-efficient lighting and the introduction of new lighting technologies, like solid state lighting," Theo van Deursen, chief executive of Philips Lighting, said in a statement.
Louisville, Ky.-based Genlyte makes lighting and lighting accessory products, with just under 90 percent of its 2006 sales related to commercial and industrial applications.
It had turnover of about $1.6 billion over the 12 months to September 2007.
Philips said it did not expect to be hurt by a downturn in the US housing market, telling analysts the U.S. non-residential market, where Genlyte makes most of its sales, was expected to continue growing.
Genlyte's Powers told analysts, "There's no question the residential business remains soft, but the commercial business is still reasonably healthy (and) we haven't seen much change over the last few months."
Powers also said he did not expect the trans-Atlantic deal to create any antitrust concerns.
"I doubt there would be any issues at all," he said.
Asked about share buyback plans after the lower house of the Dutch parliament last week approved a 2008 tax plan that will allow companies to buy back more stock tax free, Philips management told analysts, "We consider this clearly important."
But they did not elaborate.
Analysts have said Philips is likely to make use of this new provision. In September, the company said it could return billions of euros to shareholders in the next three years through dividends and share buybacks after paying for acquisitions.