PHIA Koninklijke Philips NV

By Maarten van Tartwijk 

AMSTERDAM--What does a CFIUS rejection cost? In the case of Royal Philips NV, about $1.3 billion.

That is how much the Dutch conglomerate left on the table after the Committee on Foreign Investment in the U.S. last year raised objections to Philips's plan to sell a roughly 80% stake in its LED lighting unit to a Chinese consortium. The committee is a secretive U.S.-government interagency group that vets global deals on national-security grounds.

Philips was in line to pocket $2.8 billion in the stake sale to the Chinese, valuing the unit at $3.3 billion. After Philips disclosed CFIUS had raised unspecified issues over the deal--the committee itself typically doesn't disclose its decisions-- the Dutch conglomerate dropped the transaction.

Now, Philips has a new deal: It said on Monday it agreed to sell the same roughly 80% of the unit to New York-based private-equity firm Apollo Global Management LLC. This time, though, Philips will get $1.5 billion in cash for the stake, about 46% less than envisioned in the Chinese deal. The agreement with Apollo values the entire unit at $2 billion, or just over 39% lower than the Chinese offer.

Philips Chief Executive Frans van Houten said the number of potential buyers became "considerably smaller" after CFIUS blocked the deal, resulting in a lower transaction price. CFIUS is unlikely to raise concerns again as Apollo is based in the U.S., he added.

The unit, called Lumileds, makes LED components and automotive-lighting products. It is based in the Netherlands and generated sales of about $2 billion last year. It has around 9,000 employees world-wide, with operations in more than 30 countries, including a large research-and-development facility in San Jose, Calif.

That U.S. link gave CFIUS jurisdiction to weigh in. The committee has increasingly scrutinized global deals, including transactions in which neither buyer nor seller are American. Earlier this month, a Chinese bidder abandoned plans to buy German chip maker Aixtron SE after CFIUS raised concerns and President Barack Obama moved to block the deal on national-security grounds.

Philips was surprised by the CFIUS concerns as Lumileds products have a "standard technology," Mr. van Houten said.

For Philips, the sale marks another step in its efforts to divest its 125-year-old lighting operations in an attempt to concentrate on selling health-care technology products. Earlier this year, it sold a minority stake in its general lighting business through an initial public offering and intends to fully exit the business in the coming years.

For Apollo, the transaction marks the latest in a year of prolific deal-making despite high-price markets and intense competition from corporate buyers. The firm expects to spend more in 2016 than it ever has in a single year, co-founder Josh Harris said on a call with analysts in October.

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

(END) Dow Jones Newswires

December 12, 2016 08:12 ET (13:12 GMT)

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