Cree’s long-standing plan to sell its Wolfspeed subsidiary to Europe’s largest semiconductor company for $850 million is in jeopardy because of objections from the U.S. government.
Shares of the Durham-based company fell 6 percent in early trading Thursday after it announced that the Committee on Foreign Investment in the United States has indicated that it is unlikely to approve the transaction “in its current form.” The committee is an inter-agency group that reviews proposed sales to foreign entities to determine their impact on national security.
Cree said it is exploring with Germany-based Infineon Technologies whether their deal can be modified in a way that would pass regulatory muster.
Consequently, “the likelihood or timing of closing the transaction is uncertain,” Cree reported in its announcement.
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Wolfspeed is based in Durham and has 550 employees. Its power components are used in computer servers, uninterruptible power supplies and for solar energy. Its RF transistors and integrated circuits are used in radar and telecommunications systems.
The deal announced in July also includes a silicon carbide wafe manufacturing operation, related to the Wolfspeed business, that is based in Durham.
Cree has been planning to use the proceeds of the deal – $585 million after taxes – to accelerate the growth of its core LED lighting business. Cree makes LED light bulbs, which are sold exclusively by Home Depot, as well as indoor and outdoor LED light fixtures that other companies use in LED lights. Its LEDs illuminate mobile phones, televisions, electric signs and car dashboards.
JMP Securities analyst Joseph Osha downgraded his rating of Cree stock from market outperform to market perform – the equivalent of changing the rating from a buy to a hold – in light of Cree’s announcement.
Cowen & Co. analyst Jeffrey Osborne wrote in a research report that although he’s not taking a stance on whether the deal will ultimately be approved, investors who are bullish on Cree have been counting on the proceeds of the sale to be used for “badly needed” acquisitions and to accelerate the company’s stock buyback plans.
Osborne also noted that the Committee on Foreign Investment has had the LED market in its sights in recent years and has blocked two proposed sales to companies in China.
If the sale to Infineon ends up being aborted, Osborne wrote, Cree could return to its original plan of spinning off Wolfspeed into a separate publicly traded company.
Cree shares were trading at $26.37, down $1.58, Thursday morning.