Osram, one of the world’s biggest lighting products makers, has announced plans to spin off its $2 billion old-generation lightbulb business into a separate legal entity.
The move paves the way for a sale, with financial sources telling Handelsblatt that Osram ultimately aims to get out of the business of old-style and halogen lamps. The company wants to concentrate on automotive lighting and LED components, where prospective growth is much higher.
“The Managing Board of Osram Licht AG intends to transfer the general lighting lamps business into an independent structure,” the company said in a statement. “This business includes the traditional as well as the LED-based lamps.”
It added: “The independent legal structure is to provide the basis for the further development of the business, while also considering partnerships.”
Osram was spun off from industrial group Siemens two years ago. It is already undergoing a restructuring in which a quarter of its workforce, or 8,000 employees, will be cut over three years.
The stock market welcomed the move, lifting Osram shares more than six percent to an all-time high of €51.30.
Sales at Osram’s traditional lighting unit, CLB, fell 15 percent in 2014 to €1.96 billion ($2.12 billion), while the unit’s margin on earnings before interest, tax and amortization, was 4.6 percent, compared with 6.0 percent for the group. CLB sales made up 40 percent of the group total.
Sales of traditional light bulbs have plummeted as the European Union and other governments have moved to phase out their sale in favor of more efficient LED lights, which consume less power.
The spin-off of Osram’s old-style lighting business into a separate unit is to be completed by early 2016. It will affect almost one in three of the group’s 34,000 employees. The non-executive supervisory board, which has yet to approve the reorganization, will meet on April 28.
The stock market welcomed the move, lifting Osram shares on Tuesday more than 6 percent to an all-time high of €51.30. “Osram is concentrating on its high-margin business,” said an insider who declined to be named.
Osram’s new chief executive, Olaf Berlien, who took charge in January, wants to find partners for the old-style business. These could be direct competitors or companies that make components for lightbulbs, financial sources said.
The lighting market is going through an upheaval. The traditional business is shrinking steadily while the LED segment is growing strongly.
Osram’s reorganization is a sea change for the company, which was founded in 1906. Many employees view the lightbulb as sacrosanct because it has generated solid profits for decades.
In Germany, the name Osram has been synonymous with lightbulbs for over a century. But the lightbulb is an outdated technology that experts say will eventually become extinct as LED lamps consume far less electricity.
The car industry is seen as a major driver of future growth.
Consultancy Frost & Sullivan estimates that by 2020, the lighting market will grow by 4 percent per year to €120 billion to €130 billion. While sales of LED products are expected to grow 14 to 18 percent per year, the market for traditional products will shrink up to 10 percent annually, it predicts.
Osram’s spin off is part of a new strategy that Mr. Berlien plans to present in June.
He has been reviewing Osram’s operations to identify areas that will enable it to compete over the long-term. Like its bigger Dutch rival Philips, Osram is fighting to keep pace with a rapid rise in Asian lighting makers who can offer lower prices.
Philips last month took a similar step to Osram, saying it had agreed to sell a controlling stake in its automotive lighting and LED components business to a consortium led by investment fund GO Scale Capital.
If Osram does spin off its old-style lighting business, a future partner or buyer will be able to keep its brand name for an annual license fee.
Worker representatives said the split had taken them by surprise. But it could benefit the workforce. The market is shrinking so they would have faced fresh cutbacks in any case. A new partner or owner could help to develop and grow the business, said an industry analyst.
Osram, meanwhile, will have more opportunities if it focuses on LED systems where it can innovate, said one industry analyst. The car industry is seen as a major driver of future growth.
It will be left with one problem though – the Osram brand logo features a traditional lightbulb.
Ozan Demircan is an investigative reporter at Handelsblatt. To contact the author: email@example.com