China’s Hillhouse Picks Up Philips’ Home Appliance Unit in $5.2 Billion Deal

Dutch electronics giant Philips AG said it will sell its home appliance unit to Chinese private equity major Hillhouse Capital in a deal valued at 4.4 billion euros ($5.2 billion), setting up a potential future resale of the division to a large field of Chinese manufacturers in the mature, lower-margin space.

The deal would mark the latest sell-off of a lower-margin asset by Philips, a company founded originally as a light bulb maker more than a century ago, and whose former portfolio over the years has included everything from semiconductors to electric toothbrushes. But the company has sold off much of that in recent years as it seeks to focus on its core healthcare technology products.

Philips said the transaction gives its Domestic Appliances unit an enterprise value of 3.7 billion euros, and is expected to close in this year’s third quarter, according to its Thursday announcement.

As part of the deal, Hillhouse will have the rights to use the Philips name on appliances manufactured by the unit for the next 15 years. Such transitional rights are common for well-known household brands, allowing the buyer to continue leveraging the name while slowly phasing it out over the agreed period. Chinese buyers have received similar name rights in deals involving Lenovo’s purchase of IBM’s PC division, and for TCL’s purchase of Alcatel-brand smartphones.

The unit being sold had 2.2 billion euros in sales last year, and makes everything from coffee and pasta makers to juicers and air purifiers. Philips first disclosed its plan to sell the unit more than a year ago, saying it expected to reach a deal by the middle of this year.

“This transaction concludes our major divestments,” said Philips CEO Frans van Houten. “Going forward, our focus is on extending our leadership in health technology and continuing our transformation into a solutions company supporting professional healthcare customers.”

The home appliance unit employs more than 7,000 people and is active in more than 100 countries. It will remain based in the Netherlands after the sale.

“We look forward to joining forces with Philips to expand into new markets and capture more growth opportunities globally,” said Hillhouse founder and CEO Zhang Lei.

The sale marks the latest in a long-running string of divestitures by Philips dating back to the early part of the 21st century. The company spun off its legacy lighting business in 2016 and separately listed it, and has been selling down its stake since then. It sold its audio and video business three years before that, and in 2006 sold off its unit making semiconductor chips.

Private equity companies like Hillhouse traditionally buy such assets that they believe are undervalued, then try to improve their performance before reselling them in a timeframe of typically three to five years. In 2019 Hillhouse paid an undisclosed sum for 15% of Gree Electric Appliances Inc., a leading Chinese home appliance maker known for its air conditioners.

China is home to a wide range of other home appliance specialists besides Gree, including Haier, Hisense and Midea. Haier has been one of the more active players in foreign acquisitions, including its purchase of General Electric’s home appliance unit for more than $5 billion in 2016. Two years later the company purchased Italian washing machine producer Candy for 475 million euros.

Contact reporter Yang Ge (geyang@caixin.com)

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