Cree Selling Lighting Business for $310 Million will Now Focus on Power, RF, and Semiconductors

March 18, 2019 by Scott McMahan

Cree, Inc. announced the execution of a definitive agreement to sell its lighting products business unit (Cree Lighting) to IDEAL Industries, for about $310 million before taxes. Cree Lighting includes the company's LED lighting fixtures, lamps, and corporate lighting solutions business for commercial, industrial and consumer applications. The $310 million compensation includes up-front and contingent consideration and the assumption of certain liabilities.

IDEAL says that Cree Lighting's portfolio and SmartCast® Technology, which includes power over Ethernet, as well as WiFi-based controls, and IoT, complements its advanced control business and channel of suppliers, distributors, agents, and customer relationships.

Cree expects to receive an initial cash payment of $225 million, subject to purchase price adjustments, and has the potential to receive a targeted earn-out payment of about $85 million based on an adjusted EBITDA metric for Cree Lighting over a 12-month period beginning two years after the transaction closes.

"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"

The agreement continues Cree's strategy, announced in February 2018, to create a more focused, powerhouse semiconductor company, providing growth capital for Wolfspeed, its core power and RF business.

Cree says the sale of its lighting business gives the company additional resources to expand its semiconductor operations. Cree  also expects that the sale will give Cree Lighting 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 and GaN technologies. 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 $500 million. With the addition of today's lighting divestiture news, Cree is well positioned as a more focused semiconductor leader," said Gregg Lowe, CEO of Cree.

"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 positions us well to capitalize on the tremendous advantages that these technologies offer our customers. 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," Lowe said.

We believe 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," Lowe concluded.

IDEAL is a fourth-generation, family-owned, growing global company, serving as a market leader in electric power control and management. Cree Lighting's portfolio and SmartCast® Technology are complementary to Ideal's advanced control business and 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," said Jim James, Chairman, and CEO of IDEAL Industries, Inc. "Together, we will create a powerful combination of innovation, channel strength and operational excellence. 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 the fourth quarter of fiscal 2019, and is subject to receipt of required regulatory approvals and satisfaction of customary closing conditions.

Cree FY2019 and Q3 Business Update

Based on the agreement to sell Cree Lighting, it will be classified as discontinued operations as of FY19 3Q. As a result, Cree is updating its guidance to reflect continuing operations only. For its third quarter of fiscal 2019 ending March 31, 2019, Cree targets revenue from continuing operations in a range of $271 million to $277 million.

Wolfspeed, Cree's power and RF business, is targeting revenue from $139 million to $141 million, and LED Products revenue is targeted in a range of $132 million to $136 million.