Cree Scores Wiith Divestiture, Inching Closer to Business Transformation

Cree is offloading Wolfspeed for $850 million as the LED products maker continues its journey to become a pure-play LED products maker.
By Jaewon Kang ,

Cree (CREE) - Get Report  has taken another step in its journey of becoming a pure-play lighting technology company by agreeing to sell its Wolfspeed division for an attractive price.

Durham, N.C.-based Cree announced Thursday it has agreed to sell Wolfspeed to Infineon Technologies (IFNNY)  for $850 million in cash.

The divestiture is part of Cree's strategy of becoming a pure-play LED lighting company and comes after the company initially planned to pursue an initial public offering of the power semiconductor division. After receiving expressions of interest for the business and subsequent strategic review, Cree decided to sell Wolfspeed, the company said.

Investors celebrated the news Thursday morning, sending the stock nearly 12% higher to $28.

"They got a hell of a price," said Stephens analyst Harsh Kumar in an interview.

The price tag equates to a multiple of about 4.9 times $173 million in revenue, Kumar said, explaining that it's a "fantastic" valuation for Research Triangle Park, N.C.-based Wolfspeed. Wolfspeed builds power management chips, compound semiconductors and related semiconductor materials.

As for Infineon, the acquisition makes strategic sense in that the chipmaker has made acquisitions in the power management chip sector such as its $3 billion buy of International Rectifier in January 2015.

What Infineon is willing to pay looks a bit expensive, said Drexel Hamilton analyst Cody Acree. Multiples of assets resembling Wolfspeed have been lower single-digit multiples, he said. 

Still, the German chipmaker will nicely expand its footprint in the automotive, renewable energy and wireless phone markets with its latest purchase.

The acquisition is part of an ongoing consolidation among semiconductor companies. Last year was a record-high year on the M&A front, with chipmakers rushing to make deals for scale as the sector started to show signs of slowing revenue growth.

Infineon's American shares rose nearly 3% to $15.16.

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