GO Scale Capital and Philips scrap LED business sale

The $2.8 billion deal agreed by the Chinese firm and the Dutch electronics giant has failed to obtain US regulatory approval.

Go Scale Capital, a technology focused private equity firm backed by China’s GSR Ventures, has failed to complete its acquisition of US-based Lumileds owned by Dutch electronics giant Philips due to “national security concerns” raised by US regulators.

“Despite the extensive efforts of Philips and GO Scale Capital to mitigate the concerns of the Committee on Foreign Investment in the United States (CFIUS), regulatory clearance has not been granted for this particular transaction,” Philips said in a statement.

In March last year, GO Scale Capital announced an agreement with Philips to acquire 80.1 percent of the LED business’s shares, while Philips would retain less than 19.9 percent. The transaction value was estimated to be about $2.8 billion and would have valued the business at about $3.3 billion in total.

The deal, which was expected to be completed in the third quarter of 2015, would also have included the transfer of a broad patent portfolio of more than 600 patent families related to LED manufacturing and automotive lighting from Philips to Lumileds.

Philips said it is engaging with other parties that have expressed an interest in the Lumileds business.

Private Equity International previously reported that CVC Capital Partners and KKR were exploring a joint bid for the lighting unit.

GO Scale had expected to generate about five times return on its initial investment in the Philips unit, said GO Scale chairman Sonny Wu in a statement.

GO Scale planned to procure Lumileds to develop LED related businesses and to combine the company with the local Chinese LED manufacturing supply chain. The firm took out a $1.93 billion loan from several Chinese banks, including the Bank of China to finance the acquisition, reports said.

“Moving forward, we are not deterred from our goal of building the world's leading LED lighting company; and China will inevitably become the leader of the global LED industry because of its industrial ecosystem and competitive advantages in scale and cost,” said Wu.

“The GO Scale Capital team will fully leverage its technical expertise and financing capability to complete deals in the $2-10 billion range. We will be relentless in pursuing opportunities underpinned by our unwavering mission of building world-class technology enterprises in clean technology and energy industries globally.”

GO Scale is backed by GSR Ventures and Oak Investment Partners. The consortium partners are Asia Pacific Resource Development, Nanchang Industrial Group and GSR Capital. The Beijing-based firm also has offices in Hong Kong and Palo Alto, California.

GSR Ventures, a sponsor of GO Scale Capital, was founded in 2004 and currently manages funds worth $1 billion. The firm is focused on investing in semiconductor industry, Internet, wireless communication, media and green energy sectors.

The company has completed 26 investments in China which include Chinese LED companies, such as Lattice Power, Lattice Lighting, Shineon and TimesLED.

In July last year, GSR Capital, the venture capital arm of GSR Ventures, had launched a Global Mergers & Acquisitions Fund seeking $5 billion to target cross-border buyouts of industrial and emerging technology companies multi-billion dollar scaling opportunities in China, as reported by PEI. The fund is anchored with a $1 billion commitment from GO Scale and several institutional investors.