Cree cancels Wolfspeed deal with Infineon based on US government concerns

Committee on Foreign Investment in the United States concerns over Wolfspeed sale will result in Cree once again driving the silicon-carbide-centric, RF- and power-semiconductor business forward.

The US government has scuttled another technology business deal as Cree will not sell the Wolfspeed silicon carbide (SiC) power and RF business to Infineon Technologies. Presumably, national security concerns are behind the cancellation. For now, Cree plans to operate Wolfspeed as a business division, and drive growth in the sector that is separate from its LED component and solid-state lighting (SSL) businesses.

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The Cree and Infineon Technologies deal for Wolfspeed was struck in early summer 2016 and involved Cree’s SiC technology relative specifically to power and RF semiconductors, and gemstones, but not to SiC for LEDs. Still, some observers of the LED business saw the deal as a positive step for Cree as the company could fully focus on its core SSL mission. Ironically, however, the Wolfspeed business has performed well since the deal was announced.

The end of the deal comes courtesy of the Committee on Foreign Investment in the United States (CFIUS). The same organization derailed the original sale of Lumileds to China’s Go Scale Capital. Cree and Infineon did not detail the CFIUS concerns and only said the duo could not work out a way around the obstacles raised by CFIUS. Infineon is based in Germany and the stock is traded on the Frankfurt Stock Exchange. But the company does have significant engineering and manufacturing resources in China. And the SiC technology is widely used in military among other applications.

The Cree announcement stated that the company would receive a termination fee of $12.5 million from Infineon — apparently as part of the terms of the original deal. And Cree seems both contrite and almost enthusiastic about the failure to consummate the sale.

“We are disappointed that the Wolfspeed sale to Infineon could not be completed,” stated Chuck Swoboda, Cree chairman and CEO. “In light of this development, we are going to shift our focus back to growing the Wolfspeed business. The Wolfspeed business has performed well this year as our customers have further realized the value of our unique technology and is on a great path as a part of Cree. The strength of our balance sheet and improving operating cash flow gives us the ability to invest in Wolfspeed, while continuing to pursue our LED and lighting growth plans. We believe investing to grow all three businesses will create the most value for our shareholders.”

Investors seem mostly unmoved by the failed transaction. Cree stock is recently up by just over $1.00 per share, although that represents well less than a 5% change in value short term. Cree’s Swoboda did thank Infineon for its due diligence, saying, “I thank Dr. Ploss and the rest of the Infineon team for the significant amount of time and commitment they invested trying to successfully complete the transaction.”

Cree will likely provide more detail of its future plans on April 25^th when it next announces financial results. Meanwhile, Wolfspeed will operate as a separate segment of Cree’s continuing operations.