By Maarten van Tartwijk 

AMSTERDAM--Royal Philips NV said Monday it is more likely to sell its lighting arm via an initial public offering as the Dutch electronics group struggles to find a buyer for the business.

Philips said in its latest earnings report that it tilts toward an IPO even as it continues to look at proposals in a private sale process.

"With equity markets' sentiment improving compared with the first couple of months of the year, an IPO increasingly appears a more likely outcome, " the company said. A decision could be announced "shortly", it added.

Shares in Philips fell more than 5% in Amsterdam as investors reacted badly to the news of a possible listing.

Liberum analyst Daniel Cunliffe said the announcement dashed hopes of a sale even as shareholders have known for more than a year that a listing was possible. Kepler Cheuvreux analyst Peter Olofsen said there is still little clarity on the future of the business.

Philips said the listing could take place before the end of the second quarter, a timing that coincides with the U.K's referendum on its membership of the European Union. A "no" vote on June 23 is expected to send ripples across financial markets in Europe, creating uncertainty for new stock market listings.

The Amsterdam-based firm is separating its nearly 125-year-old lighting arm as part of a wider strategic overhaul to concentrate on its more profitable and faster growing health-care business, where it competes with Siemens AG and General Electric Co.

The restructuring plan has hit hurdles before: in January, Philips terminated a planned $2.8 billion sale of most of its Lumileds lighting-components unit to a Chinese investor after U.S. regulators blocked the deal on national-security grounds. Philips said it hopes to close a new deal for Lumileds before the end of the year.

Chief Executive Frans van Houten said a direct sale of the core lighting arm remains an option and that he "continues to assess the attractiveness of this route." Proposals will be judged on their value, contractual conditions as well as potential regulatory hurdles, he said.

Investment groups such as Blackstone Group LP and Onex Corp. have shown interest in the business, which could be worth up to EUR5 billion ($5.6 billion), The Wall Street Journal reported in March.

The unit had EUR7.4 billion of sales last year, making it one of the world's biggest lighting makers. It includes a declining traditional lamps operation as well as a fast-growing business that makes lighting with energy-efficient light-emitting diodes, or LEDs.

Philips said tax charges related to the separation of the lighting business contributed to a 63% drop in net profit to EUR37 million in the first three months of 2016. Adjusted earnings before interest, tax and amortization, the company's preferred measure of its operational performance, rose 14% to EUR374 million. Sales rose 3% to EUR5.5 billion.

The company maintained its financial guidance for 2016, saying it expects earnings to improve despite global macroeconomic headwinds.

Growth came primarily from the health care divisions, which recorded 5% comparable sales growth driven by the launch of new products such as a tool to help people suffering from sleep apnea.

The lighting division saw comparable sales decline by 2% as strong growth in LED sales was offset by a drop in sales of conventional lamps. Philips said the unit is expected to return to growth in the course of the year as growing demand for energy-efficient lighting is expected to boost LED sales.

Write to Maarten van Tartwijk at maarten.vantartwijk@wsj.com

 

(END) Dow Jones Newswires

April 25, 2016 08:02 ET (12:02 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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