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Philips is to buy back up to €1.5bn ($1.8bn) worth of shares and acquire almost total control of a high-tech lighting business set up in a joint venture with Agilent.
The Dutch technology group will spend €765m in cash on the California-based company's 47 per cent stake in Lumileds, which they founded in 1999.
The acquisition underlines Philips' interest in expanding in the high-margin lighting sector and reducing its exposure in the more cyclical parts of its business, such as semiconductors.
Cash-rich Philips, which has made no secret of its hunger for acquisitions, will have 96.5 per cent control of Lumileds by the end ofthe year.
An employee trust company will own the remaining 3.5 per cent of the business.
Philips, the world's biggest lighting maker, wants to focus on divisions such as healthcare and lighting for growth, amid slowing demand for electronic items and over-capacity in thechip sector.
The market for high brightness LEDs of the type produced by Lumileds is expected to grow by an average of 25 per cent annually over the next few years. Philips said Lumileds was expected to grow faster than the market.
Analysts said the purchase fitted neatly with its moves to sell non-core assets and make acquisitions in its target sectors.
“This acquisition improves the growth and margin profile of its lighting division. With Agilent willing to sell its stake, this was a logical step for Philips,” said Peter Olofsen, analyst at Stroeve, the Dutch stockbroker.
Philips, which has an estimated €4bn cash pile, said last month it was considering resuming share buybacks after completing a €500m repurchase earlier this year. It cancelled those shares, as it plans to do with its latest buyback.
Its acquisition of the minority stake in Lumileds, which had an operating profit of $83m last year, is expected to boost earnings from next year.
Light-emitting diodes, which are used in mobile telephones, shop displays and traffic lights, are expected gradually to usurp bulbs. They are smaller and more environmentally friendly than traditional lights and last longer.