Cree of Durham, NC, USA has agreed to sell its lighting Products business unit (Cree Lighting), which includes LED lighting fixtures, lamps and corporate lighting solutions business for commercial, industrial and consumer applications, to Ideal Industries of Sycamore, IL, USA for about $310m before tax impacts (including up-front and contingent consideration and the assumption of certain liabilities). Cree expects to receive an initial cash payment of $225m (subject to purchase price adjustments) and has the potential to receive a targeted earn-out payment of about $85m based on an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) metric for Cree Lighting over a 12-month period beginning two years after the transaction closes.
The agreement continues Cree’s strategy, announced in February 2018, to create a more focused, power semiconductor company, providing growth capital for Wolfspeed, its core Power & RF business, and equips Cree with additional resources to expand its semiconductor operations. It is reckoned that the deal also enables Cree Lighting to gain additional global focus, channel support and investment as it becomes a growth engine for the Ideal team.
“Cree has made significant progress over the last 18 months in sharpening the focus of our business to become a semiconductor powerhouse in silicon carbide (SiC) and gallium nitride (GaN) technologies,” says CEO Gregg Lowe. “Over that time frame, we have grown Wolfspeed by more than 100%, acquired the Infineon RF business, more than doubled our manufacturing capacity of silicon carbide materials, and signed multiple long-term supply agreements which, in aggregate, are in excess of $500m,” he adds.
“With the addition of lighting divestiture news, Cree is well positioned as a more focused semiconductor,” Lowe reckons. “Cree’s technologies are at the forefront of the automotive industry’s transition to zero-emission electric vehicles, the telecommunications industry’s move to faster 5G networks and the continued ramp up of LEDs for specialty applications. Our leadership in silicon carbide and GaN position us well to capitalize on the tremendous advantages that these technologies offer,” he adds. “This transaction provides significant resources to help accelerate Wolfspeed’s growth while providing a terrific growth opportunity for the Lighting business and its employees through an expanded channel that strengthens its market position… This decision benefits the company and our employees, shareholders and customers as it unlocks value, increases management focus on the core business and supports our mission to accelerate silicon carbide adoption,” he believes.
Ideal is a fourth-generation, family-owned global company in electric power control and management. Cree Lighting’s portfolio and SmartCast Technology are complementary to Ideal’s advanced control business and its channel of suppliers, distributors, agents and customer relationships.
“Our combined technology and expertise will continue to build on Cree Lighting’s history of leadership and fits with the advanced systems Ideal has pioneered over the past 103 years,” says the firm’s chairman & CEO Jim James. “Together, we will create a powerful combination of innovation, channel strength and operational excellence,” he reckons. “We’re acquiring a very special business poised for sustained success, and we look forward to assisting Cree Lighting in realizing its potential.”
The closing of the transaction is expected to occur in Cree’s fiscal fourth-quarter 2019 (subject to receipt of required regulatory approvals and satisfaction of customary closing conditions).
Cree Lighting will be classified as discontinued operations as of fiscal third-quarter 2019 (ending 31 March). Cree is hence updating its guidance to reflect continuing operations only.
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