Cree Tightens Focus on LED Lighting with Sale of Wolfspeed Power & RF Division

Cree, Inc., Durham, N.C., plans to sell its Wolfspeed Power and RF division, including its silicon-carbide substrate business for power, RF and gemstone applications, to Infineon Technologies AG for $850 million in cash. The move is part of Cree’s plans to focus more on LED lighting.

“Selling Wolfspeed to Infineon speeds our transition to a more focused LED lighting company while providing significant resources to accelerate our growth,” said Chuck Swoboda, Cree chairman and CEO, in a press release. “Divesting Wolfspeed is targeted to reduce short-term profits but increase free cash flow. We believe this is the right decision for the company, as it unlocks value, increases management focus on the core business and supports our mission to build a more valuable LED lighting technology company. We target using the capital raised, combined with improved free cash flow, to fund select M&A, as well as to support additional stock buybacks.”

An article in the Triangle Business Journal reported that when talking with analysts after the sale, Swoboda said although the deal will impact short-term profits, it “expedites the  transition to Cree 3.0,” and the company strategy’s to be more LED focused.

The business to be acquired by Infineon generated pro-forma revenue of $173 million in the last twelve months ending March 27. Both Cree’s board of directors and Infineon’s supervisory board have approved the transaction. The closing of the transaction is expected by the end of calendar year 2016, and is subject to customary closing conditions and regulatory approvals. Cree sees approximately $585 million of net proceeds after tax and other deal related costs.

Cree’s 2015 total revenues were $1.63 billion. Its Lighting Products division accounts for approximately 56% of this total  and enjoyed a revenue increase of about  28% to $906.5 million from $706.4 million in 2014. Its LED Products segment, which focuses on LED components and related products, had 2015 revenues of $602.1 million, approximately 37% of total revenues.

The Commercial Lighting business gained momentum in Q4, as orders increased, customer service improved significantly, and nine new products or significant upgrades were released. The release said LED Products also executed well, delivering solid quarter-over-quarter revenue growth. Preliminary revenue results for Q4 were at the upper end of the company’s target range at approximately $388 million. Lighting Products revenue was in line with the expectations for this segment in the Cree’s previously announced revenue targets at approximately $197 million. The company’s LED Products revenue was higher than the expectations for the quarter. Cree had  previously announced a revenue target of approximately $160 million.

Cree’s stock has had its ups and downs in recent years and has made two round trips from a sub-$30 per share level up to more than $70 per share in 2010 and 2013 (topping $80 per share in 2010).  Analyst reaction to the deal has been positive, and the  divestiture sparked some fast action on Wall Street. Cree’s stock, which usually trades at less than 1 million shares per day, hit 5 million shares and increased about $2.50 per share when the deal was announced on July 14.  Trading activity has settled down in the two weeks since the deal, but the stock price has maintained the increase and was over $28 per share at press-time.