Philips Electronics share price up, intends to split operations in two separate companies to focus on health care and consumer goods

Philips Electronics revealed in an official statement today that its Chief Executive Officer Mr. Frans van Houten intends to split the companys operations in two new companies. This step will allow Philips to prepare its lighting unit for a future as an independent entity, while the rest of the company will focus on its health-care equipment and consumer goods operations.

“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,” Chief Executive Officer Mr. Frans van Houten said in a statement. The company shared that it would consider “various options for alternative ownership structures” for its lighting business, including a spin-off. Philips also plans to update shareholders in 2015.

According to the companys statement, Philips plans to create a unit called HealthTech, which would consist of its healthcare and consumer goods businesses. The company has projected that the new division will generate revenues of about €15 billion ($19 billion). In addition, the companys lighting business will become a separate company with expected sales of €7 billion, and a new ownership structure will be considered.

Philips said that the newly-formed companies have better chances for long-term growth as separate entities and they will continue to carry the Philips brand. The new structure would allow the company to cut expenses by €100 million in 2015 and by €200 million in 2016, while restructuring charges are estimated to €50 million in the period from 2014 to 2016.

Philips said second-half EBITA in 2014 is expected to be slightly lower from a year earlier, and core profit at its healthcare business is also projected to trail last years performance, but reaffirmed its 2016 financial goals.

Philips Electronics added 2.28% to trade at €24.04 per share at 8:55 GMT in Amsterdam, marking a one year change of -1.70%. The company is valued at €22.48 billion. According to the Financial Times, the 25 analysts offering 12-month price targets for Philips Electronics have a median target of €25.50, with a high estimate of €32.00 and a low estimate of €20.10. The median estimate represents a 8.51% increase from the previous close of €23.50.