LED lighting company Cree is spinning off its power and radio frequency subsidiary into a separate publicly traded company but plans to retain majority ownership of the business.
Durham-based Cree also announced Monday that Frank Plastina, the former president and CEO of telecommunications company Tekelec and a well-known figure in the Triangle business community, will be CEO of what will become Cree Power & RF Division.
Cree’s power and RF business accounts for less than 10 percent of the company’s revenue but is nonetheless a substantial business that will generate about $125 million in revenue in the current fiscal year.
It’s also a growing business – revenue rose 18 percent over the first three quarters of Cree’s fiscal year that ends in June – and generates higher gross margins than Cree’s mainstay LED lighting products and its LEDs, which are used to illuminate mobile phones, televisions and other electronic devices.
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Cree said the subsidiary’s initial public offering will enable it to raise capital to invest in its future growth. The company’s announcement included few details. Cree said it is still determining how big of an ownership stake it plans to offer to investors or how much money the subsidiary hopes to raise.
“The offering would enable Cree management to focus on Cree’s LED and lighting businesses, while also creating a dedicated focus on the power and RF business,” Cree said in its announcement. “The company believes that this transaction should allow Cree shareholders to better realize the full value of both businesses.”
Cree’s 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.
In an interview last year, Cree CEO Chuck Swoboda said of the power and RF subsidiary: “While today it is small, in the long-term it could be another significant business for our portfolio.”
Details such as how many Cree employees will move with the business and where it will be headquartered weren’t included in the announcement, and Cree declined to provide additional information Monday. But considering that the division is based in Durham, combined with Cree’s roots in the Triangle and the appointment of Plastina to run the business, all signs would seem to point to the business remaining in the region.
Cree employs more than 6,800 employees, including more than 2,600 locally.
The company’s business has been under pressure. In the latest quarter its revenue rose 1 percent to $409.5 million, dragged down by a 23 percent decline in LED sales. Revenue from lighting products, on the other hand, rose 27 percent from a year ago. Cree makes the nation’s best-selling LED light bulbs.
Investors gave the move a thumbs-up as Cree shares closed Monday at $31.48, up 6 percent. Cree shares have fallen 2 percent this year but are well off their 52-week high, recorded last July, of $53.33.
Cowen & Co. analyst Jeffrey Osborne wrote in a research note that Cree’s plan was “a positive announcement,” although he would have preferred that the LED products business would have been split off as well.
“We continue to see challenging market dynamics for Cree,” Osborne wrote. “However, we believe that the stock’s current valuation reflects much of the downside risk.”
Plastina, 52, has been a member of Cree’s board of directors since December. He was president and CEO of Tekelec from February 2006 until January 2011, when he resigned abruptly as pressure mounted for the business to improve. Tekelec was acquired by Oracle in 2013.
Plastina, who was an executive at Nortel Networks from 1987 until 2002, most recently has been an entrepreneur-in-residence with the Blackstone Entrepreneurs Network in Research Triangle Park and he has his own advisory and angel investment firm, Arc & Co.
Plastina is serving as interim executive vice president of the power and RF business prior to the spin-off of the business.