Genlyte Acquisition Fills a Gap in Philips' Domain

On November 26, Philips announced its intention to acquire Genlyte Group Inc. (NASDAQ: GLYT). With the company announcing an offer price of $95.50 per share, the acquisition price has been pegged at $2.7Bn (11.3x est EBITDA for 2007). On closing of the transaction, expected in Q1 '08, Genlyte will become part of the luminaires business group within Philips lighting. While Philips is one of the leaders in luminaires market in Europe, Latin America and Asia Pacific, it was lagging behind in the US market. Philips, which has an edge in energy efficiency products like Solid State Lighting (SSL), was finding it difficult to accelerate its presence in the US market.

The Genlyte Group, the second largest manufacturer of lighting fixtures and controls, sells its products under a slew of brand names in US. Almost 90% of Genlyte's 2006 revenues were from commercial and industrial applications (the remainder from high-end residential applications). These are the sectors which are facing increasing pressures to adopt higher efficiency lightings. With the acquisition, the Philips can leverage on Genlyte's strong distribution channel and access to its consumer base to sell Philips' products. The sales and distribution network can also be prodded to promote greener lighting technologies among the consumer market.

The acquisition will push Philips to the top league in the US market and also establish Philips as the leading global luminaires company. In addition, it presents a growth opportunity for the company in its core business in US. The deal, which will clearly close a gap in Philips domain, will result in the creation of the largest lighting company in N America, surpassing General Electric Co. The transaction is expected to be EVA positive after the fourth year, and Philips expects cost reduction in manufacturing and procurement leading to margin expansion.

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Comments

[Ceviche Fund Partners LP/Dan Jacome]

deal was at a massive premium and leaves CREE as the next obvious target