Cree to sell LED lighting business to Ideal Industries for $310M

05 Apr 2019

Transaction to sharpen Cree’s focus on being a semiconductor manufacturer.

Semiconductors, LED and lighting products developer Cree has announced that it is to sell its Lighting Products business unit (“Cree Lighting”), which includes LED lighting fixtures, lamps and corporate lighting business for commercial, industrial and consumer applications, to Ideal Industries for approximately $310 million before tax impacts.

The deal is scheduled to be completed in 4Q, 2019. Cree is expecting 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 approximately $85 million based on an adjusted EBITDA metric for Cree Lighting over a 12-month period beginning two years after the transaction closes.

'Semiconductor focus'

The agreement continues Cree’s strategy, announced in February 2018, to create what the company calls, “a more focused, powerhouse semiconductor company, providing growth capital for Wolfspeed, our core Power and RF business, and equips the company with additional resources to expand its semiconductor operations.” 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.

Gregg Lowe, CEO of Cree, commented, “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 this lighting divestiture news, Cree is well positioned as a more focused semiconductor leader.”

Lowe continued, “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 our customers.”

Ideal position

Ideal describes itself as a fourth-generation, family-owned, growing global company, operating in the electric power control and management sectors. Cree Lighting’s portfolio and SmartCast Technology are complementary to IDEAL’s advanced control business and channel of suppliers, distributors, agents, and customer relationships.

Jim James, Chairman and CEO of Ideal, commented, “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. 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.”

FY19, 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 said, last week, it is targeting revenue from continuing operations in a range of $271 million to $277 million. Wolfspeed revenue is targeted in a range of $139 million to $141 million, and LED Products revenue is targeted in a range of $132 million to $136 million.

GAAP gross margin from continuing operations is targeted at approximately 35%, with non-GAAP gross margin from continuing operations targeted at approximately 36%. GAAP net loss from continuing operations is targeted at $(14) million to $(9) million, or $(.14) to $(.09) per diluted share. Non-GAAP net income from continuing operations is targeted to be in a range of $14 million to $18 million, or $0.14 to $0.18 earnings per diluted share.