Cree says the acquisition of Cotco will provide access to the important and fast-growing solid-state lighting market in China. Another benefit will be Cotco's low-cost manufacturing capabilities for packaged LEDs.
Currently, most of Cree's revenue is from the sale of LED chips, and its only packaged LED product line is the XLamp power LED family. Cotco has a competitive power LED family, Dorado, and also manufactures many other LED types.
Cotco currently purchases LED chips from suppliers including Cree, and has licensed Cree's white LED patent (see Cree licenses white LED patent to Stanley, Rohm, Cotco.
Cree says that through the acquisition its goal is to offer more value-added products in key markets for high performance LED screens, signage and solid-state lighting. "This acquisition is the next step in our strategy to enable the solid-state lighting revolution," said Chuck Swoboda, Cree chairman and CEO. "We look forward to working together to expand our business in China and to transform Cree into a truly global company."
The deal will provide Cotco's parent company, Cotco Holdings Ltd, with $70 million in cash and 7,604,785 shares of Cree stock valued at $130 million, based on the average price over the previous twenty trading days. Additional consideration of up to $125 million is tied to the Cotco business achieving specific financial targets over the next two fiscal years.
"We are excited about the merging of Cotco into Cree, which will provide Cotco with access to Cree's technology and comprehensive IP resources. This combination will strengthen Cotco's leadership position in the solid-state lighting supply chain," said Paul Lo, Cotco Holdings chairman.
As part of the deal, Cotco and a subsidiary of Cotco Holdings will also enter into a long-term supply agreement at closing that will require the subsidiary to purchase a quarterly volume of LED lamp products, consistent with historical purchases, from Cotco on competitive terms.