Royal Philips (NYSE: PHG) will spin off its healthcare technology business into a separate company as it eyes tremendous potential to capture further growth in the changing landscape, the company announced Tuesday.
The company has been active recently in marketing several of its healthcare products specifically to senior consumers and also within senior living communities.
Combining its Healthcare and Consumer Lifestyle businesses into one entity, which Philips has dubbed has HealthTech, the Dutch electronics company aims to capitalize on what it refers to as the “convergence of professional health care and consumer-end markets across the health continuum.”
“I do appreciate the magnitude of the decision we are taking, but the time is right to take the next strategic step for Philips, as we continue on our transformation,” said Royal Philips CEO Frans van Houten in a written statement. “To become the global leader in HealthTech and shape the future of the industry, we will combine our vibrant Healthcare and Consumer LIfestyle businesses into one company.”
At the same time, Philips also announced it is establishing a separately spun-off company for its Lighting solutions business, which specializes in developing LED lamps, luminaries and connected lighting systems and services.
Giving independence to this business segment enables Philips to expand its global position and venture into adjacent market opportunities.
“Both companies will be able to make the appropriate investments to boost growth and drive profitability, ultimately generating significantly more value for our customers, employees and shareholders,” van Houten said.
Philips has become an established provider of tech solutions within the consumer tech market, especially in the senior living sector with several product launches in the last year.
Notably, the company’s Community Without Walls product, launched in June 2013, enables senior living providers to offer service packages to seniors who prefer to remain living in their private residences. Last month, the company released a new smartphone app that syncs with its flagship personal emergency response system Philips Lifeline.
As for HealthTech, Philips plans to capture new opportunities to grow this platform by expanding the combined entity across the continuum, from healthy living and prevention, to diagnoses, treatment, recovery and home care.
Shifts in the way healthcare providers strive to deliver better and more affordable care, as well as increasing engagement among consumers to proactively monitor and manage their health, further illustrate the company’s strategic decision to establish HealthTech as its own entity.
“The combination of our Healthcare and Consumer Lifestyle portfolios and the integration of the data from the connected products on Philips’ cloud-based digital health platform illustrate our opportunity to capture growth in an increasingly connected world, where societies are looking for more effective and lower cost health solutions,” said van Houten.
In relation to the company’s repositioning, Philips will begin the process to transition its Lighting solutions business into a separate legal structure and consider various options for alternative ownership structures with direct access to capital markets.
By creating these HealthTech and the Lighting solutions companies, Philips anticipates to save an additional $100 million (EUR) in cost savings as a result of the new operating structures in 2015, and a further $200 million (EUR) in 2016.
Taking into account expected restructuring costs of approximately $50 million (EUR) annually from 2014 until 2016, Philips targets a return on invested capital of more than 14% for 2016.
Written by Jason Oliva