Amsterdam, The Netherlands - Royal Philips Electronics (AEX: PHI, NYSE: PHG) today announced it has reached an agreement in principle to sell its Set-Top Boxes (STB) and Connectivity Solutions (CS) businesses, currently part of its Home Networks business unit within the Consumer Electronics division, to U.K.-based technology provider Pace Micro Technology (FTSE: PIC). Philips agreed in principle to divest the STB and CS businesses to Pace in exchange for 70 million Pace shares. The proposed transaction is subject to approvals from Pace shareholders, the relevant regulatory authorities and Philips’ workers council. After its successful completion, Philips will become a 23% shareholder in the combined business, representing a market value of around EUR 90 million calculated with the closing price of Pace shares on December 18. The transaction is expected to close in the first quarter of 2008.

The outcome of the transaction will result in a combination of strengths of two leading players in the industry, creating one of the largest set-top-box players in the world at a time when the shift from analog to digital TV is rapidly increasing. Commenting on the sale, Philippe Alcaras, Business Unit leader Philips Home Networks said: "We feel that the rapidly changing dynamics of the markets in which the STB and CS businesses operate will inevitably culminate in further industry consolidation. By striking a deal with Pace now, we gain the first-mover advantage and it shows Philips’ determination to secure a leading role for our businesses, and make them even more relevant to our customers and technology partners."

Generating estimated revenues of EUR 425 million in 2007, the STB and CS businesses together employ approximately 335 people, predominantly based in France, who would transfer to Pace as part of the transaction. The remainder of Home Networks, Home Communications, which includes Internet Telephony and Home Telephony (DECT), will become part of the Peripherals & Accessories unit within Philips’ Consumer Lifestyle sector.

For more information, please contact:
Joon Knapen
Philips Corporate Communications
Tel.: +31 20 59 77477
Email: joon.knapen@philips.com