At closing, Cree issued 1.85 million shares of common stock and paid approximately $16.45 million in cash in exchange for LLF shares. Cree also assumed outstanding LLF stock options. Additional cash consideration of up to $26.4 million may be payable over the next three years, tied to new product milestones and key employee retention.
Cree says that the acquisition expands its market opportunity by providing direct access to the lighting market.
Cree is now a vertically integrated manufacturer of LED chips, components (including XLamp power LEDs as well as packaged LEDs manufactured by its Cotco unit) and lighting products.
In a conference call just after the original announcement, Chuck Swoboda, chairman and CEO of Cree, described the deal as a "bold step forward in leading the LED lighting revolution," and also said it would benefit Cree's LED customers. But this raises an obvious question…what about competition between Cree and its LED customers?
Swoboda explained that the main purpose of the deal was to "drive the retrofit market…and provide LED products for existing lighting sockets." LLF's focus so far has been to build LED fixtures that are direct replacements for conventional lamps.
Because of this, said Swoboda, the acquisition "complements the strategy of our LED customers, [since] they are focused on applications that require complete new fixtures."
Swoboda was asked directly whether the acquisition puts Cree in direct competition with some of its existing customers that build LED fixtures.
"In fact it doesn't," said Swoboda, "and the reason is that our fixture customers [for XLamps] are focused on building completely new fixtures, for new construction applications. LLF fills an unserved need in the marketplace today, allowing us to address this retrofit market for existing lighting sockets. In parallel with our XLamp customers, we can lead the adoption of LED lighting and drive demand – this helps us but also really helps our XLamp customers."
You may or may not be convinced by this explanation, and we at LEDs Magazine have not been surprised to hear comments such as "Cree will keep the best devices for themselves [meaning LLF]." But this is frequently an issue for vertically integrated companies, for example Philips, which owns LED maker Lumileds as well as the former Color Kinetics, a fixture manufacturer.
Other discussions have surrounded LLF's intellectual property, which some suggest could be the true reason for the deal. The LLF-owned US patent 7,213,940 covers key technology that enables LLF fixtures to produce high-efficacy warm-white light with very high CRI.
For a review of this technology, see our recent article: Essentials of designing efficient luminaires with LEDs. A number of related patent applications by LLF are published and can be viewed on the USPTO website.
Now that Cree owns this IP, it can use it to help carry out its stated purpose of "accelerating the adoption of LED lighting." The deal also means that the IP won't get shelved or neglected, which may have been the case if LLF had been swallowed up by a major lighting manufacturer.