Osram sale Lights, China, Action!

A consortium led by the Chinese company specialized in LED lighting, MLS, will take over Osram's spin-off Ledvance. Workers in Germany are confident the company has a bright future.
Light in July.

An orange logo emblazoned with a light bulb has long represented Osram, the multinational lighting specialist from Munich. But Osram has gradually been scaling back use of the logo in a precursor to the announcement that it has sold its traditional lamps business.

A Chinese consortium around LED specialist MLS is the buyer, for a purchase price of more than €400 million, or $439 million, Osram announced on Wednesday.

It's a turning point for the company, listed on Germany's mid-cap MDAX stock exchange.

The Osram spinoff known as Ledvance had revenues of €5.6 billion in 2015 and a sales volume of €2 billion. In the future, Osram will focus on the more future-orientated LED business and offset the losses in sales in the coming years.

The move is the second time a major German producer of goods has been bought by a Chinese company, after Kuka, a maker of industrial robots was bought by Chinese appliance maker Midea.

Osram’s chief executive Olaf Berlien called the step “a milestone in Osram’s alignment towards a high-tech player in the lighting industry.”

Backed by strong financial resources, we are committed to sustainable development.

Osram's strategy has been the subject of extensive discussion this year, mainly due to its expansion into the LED chip business and the accompanying construction of a production site in Malaysia, a headache for major shareholder Siemens. There was less criticism of the decision to spin off the traditional lighting business, where sales have been falling for several years.

And while there was much discussion among German politicians about the sale of Kuka to Chinese Midea, the Osram sale has not met much resistance. While Kuka's technology is seen as key for the fourth industrial revolution, light bulbs are obsolescent and, in the era of LEDs, are being phased out, and Osram had cut jobs and restructured the unit several times.

The future looks brighter as the new Chinese owner plans to use the unit's marketing channels and supply chains for its own products. That is one reason why trade union leader Michael Knuth, deputy chairman of IG Metall's supervisory board, called the combination "good news for Ledvance’s employees.” Workers at Osram aren't expecting painful cuts and Mr. Berlien likewise stressed that “the best owner for Ledvance” had been sought and found. For him, it wasn’t about negotiating the highest possible price; according to information obtained by Handelsblatt, the other bidders for the unit were mainly financial investors who would have likely wanted to skim as much as possible out of the business.

Ledvance is larger than MLS, the company taking it over. The Chinese company was founded in 1997 and has its headquarters in Zhongshan in southern China. According to information supplied by Osram, MLS most recently generated sales of €525 million, with 12,500 employees. The company is the market leader in LED lamps in China.

Osram’s lamps business includes fluorescent lamps, as well as energy-saving light bulbs, halogen lamps, and LED lamps for home use, called LED Retrofit Lighting.

 

153 Osram WTB 2015 fiscal year ends September

 

Osram has tried to address some concerns about the buyer’s financial state by including a couple of conditions in the purchase agreement, such as refusing for the costs of the takeover to be imposed on Ledvance as debt. Furthermore, MLS is not entering the transaction alone but together with financial investors IDG and Yiwu. “Backed by strong financial resources, we are committed to sustainable development,” said Anton Yu, a partner at IDG.

The purchase price of more than €400 million and payments for license agreements of trademark rights in the coming years are not lavish compared to the sales but in recent years, experts thought it more likely that Osram would have to give an investor money. But for MLS this deal looks promising and the company plans to buy LED chips from Osram's new plant in Malaysia in the future.

It is an open question what Siemens will do with its remaining shares in Osram. The situation between the two companies has not always been easy and earlier this year, Siemens voted against extending Mr. Berlien's contract but was voted down by Osram shareholders. But last month, in a lightening of relations, Mr. Berlien and the chairman of Osram's supervisory board, Peter Bauer, were invited to the opening of the new Siemens headquarters in Munich.

 

Handelsblatt's Axel Höpner writes about Siemens and other companies and markets. To contact the author: [email protected]