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Concerns raised by US regulators on Philips’ Lumileds Sale to Go Scale Capital

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October 27
9:55 PM 2015

Dutch electronics and healthcare company Philips announced that its proposed sale of Lumileds to Go Scale Capital had run into unexpected opposition from US government.

The $3.3 billion sale could be blocked by US authorities.

The company had announced plans to merge and spin out its Lumileds and automotive lighting businesses as one unit in June 2014. And earlier this year, Philips agreed to sell a stake of 80.1% to Go Scale Capital, an investment fund of Asian private equity firms.

Investors in GO Scale Capital are all based in China, including GSR Capital, Nanchang Industrial Group, and Asia Pacific Resource Development.

Philips' move aims to turn the company focus to the healthcare industry and away from lighting as it sees a booming demand on healthcare technologies for hospitals. The business field also opens other market opportunities for healthcare products such as medical scanners and toothbrushes.

Philips' lighting business, Lumileds, earns  sales and profit from the company's automotive components business, LED production and LED patents.

But the disposal of the Lumileds unit is now in doubt due to concerns raised by the US government's Committee on Foreign Investment in the United States (CFIUS).

Philips told Reuters that the company and Go Scale Capital will continue to engage with CFIUS and will take all reasonable steps to address its concerns, but the closing of the transaction is uncertain.

Philips announced the update as it released the latest result of its third quarter revenue, which is better than had been expected, with features rising margins and cost-savings.

The company's third quarter income hit to a profit of €324 million from a loss of €103 million is the same period last year. The sales were up 2% to €5.8 billion from the same period of 2014.

According to Financial Times, the company's margins on the healthcare unit rose 30 basis points to 12.3% despite worsening macroeconomic conditions in a number of markets and negative currency impact.

While the lighting unit sales grew 24% and margins improved. LED sales represent 44% of total sales in the lighting unit up from 36% in 2014.

For comparation, Philips' profit resulted to a loss in 2014 following a company closure of a factory in Cleveland, Ohio.

Although the sales and profit are better than expectation in the third quarter this year, Philips CEO Frans van Houten said, as reported on CNBC, that it will take some time before the market are all back at their historical growth. But the company is pleased with the rates results improvement despite all that currency volatility, he added.

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