Shares in Dutch Philips Electronics touched two-month highs yesterday after the electronics maker said it would sell its chips business, and boosted its share buyback plans.
Philips said it would sell an 80.1 per cent stake in its microchip unit for €3.4 billion to several private equity firms, marking its exit from a competitive business that has generated wild swings in profits.
"The transaction marks an important step in the execution of Philips' strategy to transform itself into a less cyclical, stable growing company," Rabo Securities analysts said in a note.
Philips shares rose as much as four per cent in yesterday's early trade and was up 1.7 per cent at €26.16 ($33.43) at 0850 GMT (4:50 a.m. ET).
The company also said it would return €4 billion to shareholders through dividends and buybacks, including a €1.5 billion buyback announced in mid-July.
"We view this announcement as very positive for the stock and re-iterate our Buy rating," said ABN AMRO analyst Didier Scemama.
The deal to sell the majority of the chips business to Kohlberg Kravis Roberts & Co., Silver Lake Partners and AlpInvest values the unit at €8.3 billion. "From Philips' perspective it's a brilliant price," said Scott Geels of Sanford C. Bernstein & Co.
"They got out of a division that was clearly struggling, was losing market share, and they got it for above fair value and for cash as well."
Analysts are curious to find out whether Philips intends to merge its remaining 19.9 per cent stake in the chips business with another chipmaker, a scenario that the company outlined in June when it announced that it would sell or float the division by the end of the year to exit the business.
Competitors in consumer electronics and communications chips, such as US-based Freescale, Germany's Infineon and Franco-Italian firm STMicroelectronics, are potential buyers.
"As its exposure to semiconductors is reduced to below 20 per cent, we expect Philips will be able to fully de-consolidate semiconductors' results, leaving these results a reflection of Philips core businesses only," Rabo said.
"This in our view will bring to light that these core businesses are currently undervalued."